What happens to arrears of equal pay on an employer's insolvency?

In the case of Graysons Restaurants Ltd v Jones and others the Court of Appeal held that a claim for equal pay, which had not been determined when the employer became insolvent, could constitute “arrears of pay”, allowing the Claimants to claim up to 8 weeks’ arrears of pay from the National Insurance Fund. However, this case also clarified that, where the liability for arrears of pay due to employees exceeded the amount recoverable from the National Insurance Fund, the liability would transfer to the acquirer of the business and assets out of administration under TUPE.

Facts

In 2007, equal pay claims were brought against Liverpool City Council by a group of 86 women working as catering assistants in a statistically female dominated workforce. It was conceded that the majority of the Claimants were doing work of equal value to their male comparators who worked in statistically male-dominated comparator roles, such as road sweeping and refuse collecting.

Before the equal pay claims had been decided, the Claimants’ employment had transferred from Liverpool City Council to Hopkinson Catering Limited and then again to Duchy Catering Limited (“Duchy”). Duchy subsequently went into administration and its business and assets, as well as the Claimants, were transferred to Graysons Restaurants Ltd (“Graysons”) under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).

Under TUPE, liability for unpaid sums owed to employees would usually be passed to the party acquiring the business and assets out of administration. However, in measures designed to assist failing businesses, TUPE states that where the business being acquired is either in administration or liquidation, certain debts owed to employees can instead be claimed from the National Insurance Fund. This includes up to eight weeks of pay arrears (subject to the statutory limit on a week’s pay, currently £525).

The questions to be decided in this case were:

1. Whether the Claimants’ equal pay claims amounted to arrears of pay; and
2. If so, whether liability for the arrears of pay had transferred from Duchy to Graysons under TUPE.

Decision

It was held that:

Given that it was conceded the Claimants’ work was equivalent to that of their male counterparts, there was a presumption that equality clauses operated in their contracts which, unless the claim for equal pay was defeated, meant the Claimants had an entitlement to be paid in accordance with the equality clauses for work completed prior to Duchy’s administration. Arrears of pay could therefore include arrears of equal pay for the purposes of a claim from the National Insurance Fund.

Accordingly, it was found that the Claimants were able to claim the first eight weeks’ arrears of pay from the National Insurance Fund and that this liability had not transferred. However, to the extent that the liability for arrears of pay exceeded the amount payable by the National Insurance Fund, liability would transfer to Graysons.

Comment

Although this case focuses on the ability of Claimants to claim arrears of equal pay from the National Insurance Fund, it also highlights that any arrears of pay in excess of eight weeks’ pay will be transferred to the acquirer of the business and assets out of administration.

Given that the acquirer would not usually have the benefit of any warranties or indemnities when buying the business and assets of a company in administration, when acting for a buyer it will be important to ensure that a thorough due diligence process is carried out to establish the extent of any potential historic employee liabilities which it may inherit. An analysis should then be undertaken to consider whether to proceed with the purchase and consideration given to the purchase price to reflect the inherent risks.