Mr M Mohammed and Others v European Living Retail Ltd (in Administration) and Others: 4100395/2025 and Others
EMPLOYMENT TRIBUNALS (SCOTLAND)
Case No 4100395/2025
Between
Mr Maariya Mohammed & 6 othersClaimantEuropean Living Retail Ltd (in Administration) and OthersRespondent
Before
Employment Judge CampbellMr N McDougall (instructed by Counsel) for claimantMr Kirsty Robertson & 3 others Other Claimants for claimantIn person for claimantMr G Millar (instructed by Solicitor) for respondentMr P Soni for respondentIn House (instructed by Representative) for respondentDate 10 April 2026
JUDGMENT
[1]There were relevant transfers under regulation 3(1)(a) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 as follows:a. From the first respondent, in respect of the activities of its Edinburgh store, to the second respondent, andb. from the first respondent, in respect of the activities of its Glasgow store, to the third respondent; and[2]Each relevant transfer occurred on 1 November 2024.
REASONS
[1]This is a consolidated set of six claims against four parties. The first respondent employed each claimant up until 31 October 2024. The claimants alleged that it was a transferor in a relevant transfer under regulation 3(1)(a) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE’).[2]The second and third respondents were alleged to be transferees in circumstances where they each began operating one of the first respondent’s stores and engaged some, but not all, of its employees.[3]The fourth respondent is an interested party as sums have been claimed from it by former employees of the first respondent following the first respondent entering into administration.[4]Following case management it was decided that this hearing would take place to determine whether one or more relevant transfers occurred by the operation of TUPE, and of so on which date(s).[5]Evidence was heard from the following individuals in this order:a. Mr Adam Davidson, one of two former directors of the first respondent and now a director of the second and third respondents;b. Ms Clare Grant, a claimant and ex-employee of the first respondent at its Edinburgh store who was not subsequently engaged by the second or third respondent;c. Ms Stephanie Wishart who was in the same circumstances;d. Ms Kirsty Robertson who had a split role with the first respondent between Edinburgh and Tillicoultry but was taken on by the third respondent in the Glasgow store from 1 November 2024;e. Ms Serena Weir, a claimant who had been employed by the first respondent in Glasgow but who was not engaged by the second or third respondent on or after 1 November 2024.[6]A joint hearing bundle was prepared. Numbers appearing below in square brackets correspond to pages within it.[7]After evidence was given the parties were given the opportunity to make closing submissions. Those are discussed further below.
Relevant law
[8]The background law relevant to this hearing was agreed by the parties and so is referenced briefly here.[9]TUPE exists to protect employees in the event that the entity employing them changes ownership. If TUPE did not exist, employees could be dismissed with little or no forewarning or protection by simply transferring the constituent parts of the business, group or service to another legal person.[10]The original version of TUPE was implemented in 1981 pursuant to the (then) EC Acquired Rights Directive 77/187. It was amended in 2006 to clarify the law which had by then developed substantially by way of case authorities and specifically to recognise the growth in service-based operations.[11]These claims were concerned with whether there had been an ‘original’ or ‘traditional’ type of business transfer rather than a qualifying service provision change.[12]In that context, what amounts to a ‘relevant transfer’ – one in which employees are protected in other words, is set out in regulation 3 as follows: A relevant transfer 3(1) These Regulations apply to— (a) a transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another person where there is a transfer of an economic entity which retains its identity; … (2) In this regulation “economic entity” means an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary.[13]The key consequence for employees of such an undertaking or entity, and which would not happen otherwise, is set out in regulation 4: Effect of relevant transfer on contracts of employment 4(1) Except where objection is made under paragraph (7), a relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor and assigned to the organised grouping of resources or employees that is subject to the relevant transfer, which would otherwise be terminated by the transfer, but any such contract shall have effect after the transfer as if originally made between the person so employed and the transferee. (2) Without prejudice to paragraph (1), but subject to paragraph (6), and regulations 8 and 15(9), on the completion of a relevant transfer—(a) all the transferor’s rights, powers, duties and liabilities under or in connection with any such contract shall be transferred by virtue of this regulation to the transferee; and(b) any act or omission before the transfer is completed, of or in relation to the transferor in respect of that contract or a person assigned to that organised grouping of resources or employees, shall be deemed to have been an act or omission of or in relation to the transferee. …[14]The remainder of the regulations deal with matters such as informing and consulting employees about a relevant transfer, the effects of insolvency, particular rules relating to pension rights and trade union involvement, and the enforcement of claims. Those do not have a bearing on this hearing.[15]A substantial body of case law, both European and domestic, has developed which remains part of UK jurisprudence post-Brexit. Parties referred to specific cases and those are discussed in more detail later in this judgment. Findings of fact The following findings were made, based on the evidence provided and on the balance of probability.
Findings of fact
[16]Under a set of franchise agreements the first respondent had exclusive rights to sell and fit the products of a Danish furniture company named BoConcept A/S (referred to hereafter as ‘Bo’) in Scotland. The first respondent as a business provided a design and installation service to customers from four locations – Edinburgh and Glasgow free-standing stores and concessions within the premises of another furniture supply business in Tillicoultry and Aberdeen. It used warehouse facilities in Aberdeen and Glasgow. All premises were leased.[17]The main activity of both the stores and concessions (hereafter together referred to as the ‘stores’ unless indicated otherwise) was to design furniture solutions based on customer requirements. This would involve a choice of furniture which was supplied exclusively by Bo to order. Although examples of the furniture were displayed in stores, it could not normally be purchased separately from the design service. There would typically be a lead time of weeks between the design being finalised and the order being placed, and the arrival and installation of the furniture. Customers would be asked to pay a deposit in advance of the order being completed. Stores featured the ‘BoConcept’ branding and aesthetic prominently.[18]The first respondent had two directors, Heather Griffiths and Adam Davidson who were also employees. Each store also had a manager, design consultants and a Retail Support Co-ordinator who provided after-sales support to customers including handling any complaints. There were dedicated warehouse staff also.[19]Around January 2024, upon finalisation of the first respondent’s annual accounts for the financial year to 31 March 2023, it became clear to the directors that the company had made a trading loss of around £77,000 compared to a profit in the region of £176,000 the year before. Throughout the following months they sought advice on the company’s financial position from first accountants and then insolvency specialists.[20]By September 2024 the directors had decided that the first respondent could not trade out of its financial difficulties and should be placed in administration. The firm Seneca Insolvency Practitioners was formally instructed by correspondence dated 20 September 2024. Various options were discussed and a pre-pack sale was advised. This was for three reasons –(i) it would ‘maximise realisations…by ensuring continuity of the business and its brand’,(ii) it would ‘preserve the jobs of its 46 employees’ and(iii) the administrators should be able to realise property in order to make a distribution to one or more secured creditors.[21]The plan involved setting up two new companies, one each to take over management of the existing Edinburgh and Glasgow stores, and ceasing operations altogether in Tillicoultry and Aberdeen. An administrator would be appointed and sell the assets of the first respondent to the second and third respondents in a ‘prepack’ transaction.[22]The second and third respondents were incorporated in Scotland on 23 September 2023 and around the same time a bank account was opened for each. The two directors of each were Mr Davidson and Ms Griffiths.[23]The directors had weekly meetings with a representative of Bo and kept her updated with developments. Bo agreed in principle to a prepack sale as envisaged.[24]Seneca had advised the first respondent in relation to the legal process for appointment of an administrator. Whilst that was underway and from some time in the first week of October 2024, the directors advised staff to make the following changes to how they dealt with customer orders:a. To continue to process new customer orders through the existing ordering system, but to keep a separate record of them; andb. To prompt customers to make any payments using new options which led to the funds being deposited in the bank account of either the second or third respondent, depending on which store the transaction related to.[25]Around 11 October 2024 the directors notified the first respondent’s bank that the company was being placed in administration. The account was frozen and could not be used from then on. Franchise agreements[26]The directors on behalf of the first respondent signed an agreement with Bo to terminate the existing franchise agreements with effect from 13 October 2024. A condition of this was that the owners of the first respondent were to establish a new company which would enter into new franchise agreements to operate the Edinburgh and Glasgow stores.[27]This was effected by the second respondent entering into a franchise agreement to manage the Edinburgh store and the third respondent doing likewise for the Glasgow store. Only the first of those agreements was produced to the tribunal, but it was accepted by the parties that the Glasgow agreement was mutatis mutandis the same. Each gave the respective company the right to trade as a ‘BoConcept’ store for five years from 14 October 2024. This ensured continuity of a Bo presence and service from the Edinburgh and Glasgow stores.[28]Mr Davidson’s evidence was that it had been agreed with Bo that the second and third respondents would not begin to operate under their respective franchise agreements until possibly as late as December of 2024, when certain other steps had been taken. This appeared to include the recruitment of staff, the entering into of new leases for the Edinburgh and Glasgow stores and the purchase of existing stock, orders and other property from the first respondent. His understanding was that the second and third respondents began trading in their own right on 1 November 2024. This would have meant that between 14 and 31 October 2024 the first respondent was operating but without a franchise agreement in place. He understood that the second and/or third respondent were acting on behalf of the first respondent by serving its customers and taking payments.[29]Bo stipulated that there should be no more than six staff at each store, excluding the directors. This also did not include warehouse staff. It appears from the evidence, discussed below, that a larger number of individuals was re-recruited. Appointment of administrator[30]There was a minuted board meeting of the first respondent on 25 October 2024. Appointment of an Insolvency Practitioner from Seneca as administrator was approved (hereafter referred to as the ‘administrator’). A notice of appointment dated the same day was submitted to Glasgow Sheriff Court and certified as received on 28 October 2024.[31]The directors believed that this was sufficient to change the status of the first respondent from solvent to ‘in administration’.[32]It was not however until 8 November 2024 that the administrator was formally confirmed by the court as having been appointed [392-393]. Redundancy and engagement of employees[33]On 29 October 2024 the directors asked all employees of the first respondent by email to attend an online meeting the following day [369]. At that meeting Mr Davidson provided information which was put in a letter which was sent to all staff the following day [370].[34]The briefing (and letter) referred to the financial difficulties the company had been experiencing and confirmed that it ‘is now entering administration’. The letter stated that as a result all employees, including the directors, ‘will be redundant as of Thursday 31st October’. It went on to say that new companies and franchise agreements were being put in place, and that there would be a new operation but on a reduced scale. Staff would be recruited for that but there would be ‘significant changes’.[35]Mr Davidson said that he and Ms Griffiths would be visiting each store on 30 and 31 October and would answer people’s questions. The option of a telephone or online meeting was also offered.[36]Seneca were confirmed as the administrators and a contact telephone number was given for ‘once they are formally appointed’.[37]Each employee was told individually on 30 or 31 October whether they would be offered a role with either of the second or third respondent. In total around 28 people out of 46 employees were offered new roles. The majority of those were offered the same role in the same store – Edinburgh or Glasgow – in which they had been working, or in a warehouse as they had worked before. Four staff based in Tillicoultry were offered the same or similar roles but in Edinburgh. One other was offered a new field sales role.[38]Each person offered a role accepted it and became an employee of the second or third respondent on 1 November 2024.[39]The Edinburgh and Glasgow stores did not close other than in line with their normal business hours. They were open as normal on 31 October and again on 1 November. The stores had the same appearance, inside and out and the majority of staff were the same. The only obvious sign that there had been a change in the party operating each store was that a notice to that effect was put in the window, specifying the name of the new company.[40]From 1 November 2024 each of the Edinburgh and Glasgow stores began using their own design and customer ordering systems. Those operated the same way as the equivalent systems of the first respondent. Staff did not need training to use them. All customer orders placed were fulfilled by the store in question which was entitled to the corresponding payment.[41]The Tillicoultry and Aberdeen concessions closed on 31 October 2024. Deed of release and purchase of assets[42]The first respondent’s bank issued a deed of release to it dated 8 November 2024. This removed the impediment of the existence of a floating charge over the company’s assets, allowing the administrator to sell them.[43]On the same day the administrator, having just been appointed, and the first respondent entered into a sale agreement with the second and third respondent, and the directors, for the sale of the first respondent’s assets. In material terms the assets comprised stock and some fixtures and fittings within the stores, plus any goodwill which existed. It included all existing and unfulfilled orders of the first respondent. The parties’ submissions[44]All parties attending were given the opportunity to provide submissions. Mr Millar, Mr Kissen, Mr McDougall and Mr Soni did so. As the hearing dealt with essentially one key issue, namely whether (and if so when) there was a relevant transfer (or more than one), the parties’ headline positions can be summarised as follows.[45]Mr Millar argued that there had been no transfer at all. His secondary position in the event of that not being found was that there had been transfers to the second and third respondents on 1 November 2024 but that there had already been a ‘terminal event’ within the scope of regulation 8(7) in the form of the steps taken to appoint the administrator which prevented them being treated as relevant transfers under regulation 3 with the normal consequences for employees in regulation 4. In response to submissions by other parties he noted that funds received by the second or third respondent up to 31 October 2024 for both existing and new orders were separately documented so they could be accounted for in the administration to follow. If there had been a transfer on 14 October 2024 then any dismissals would have been carried out at that time – but they had not been.[46]Mr Kissen argued that there had been relevant transfers of parts of the first respondent to the second and third respondent on 14 October 2024 when entitlement to supply Bo products to customers moved to each. He referred to Spijkers v Gebr Abbatoir CV [1986] ECR 119 as authority for the point that all of the relevant factual circumstances should be considered in the round, including some of the factors listed in that decision. There should be a focus on what was the economic reality rather than taking a formalistic approach. This showed that on 14 October 2024 the first respondent’s franchise was terminated and transferred to the second and third respondent. By then staff had already been instructed to use the new companies’ bank accounts. Customers placing new orders were encouraged to pay into those. The first respondent’s account had been frozen and could not be used. It was always intended that a business of substantially the same nature would continue. The only changes of any materiality were the legal entities who would carry out the activities, the shedding of legal debts and a reduction in the workforce (although it is noted that two sites were also closed). The Edinburgh and Glasgow stores were already stable economic entities before the transfer date. He noted that, post-North Wales Training and Enterprise Council Ltd (t/a Celtec) v Astley and others [2006] UKHL 29, a relevant transfer could only be deemed to occur on a single date and not over a longer period of time. It cannot be artificially changed by the parties’ will. In relation to the insolvency element of the case, an undertaking could only be subject to proceedings envisaged by regulation 8 from the formal date of an administrator’s appointment – in this case 8 November 2024.[47]Mr McDougall had prepared a note of submissions and was content to rely on that. In it he stressed that, following Cheesman and others v R Brewer Contracts Limited [2001] IRLR 144, the tribunal should first consider whether there was an undertaking, and then if so look at whether it had been transferred. There had been an undertaking and as far as the Edinburgh store (where his client had worked) was concerned, it retained its identity. Only the corporate owner changed, but even then it had the same directors as before. He emphasised also that it had been a condition of Bo consenting to the termination of the first respondent’s franchise agreement that another entity enter into a new one. The activities were the same, the products and services were identical and there was no gap in trading. Mr McDougall suggested that there had been a transfer on either of 14 or 31 October 2024. In favour of it being the earlier date, the first respondent had ceased being entitled to provide Bo products and services the day before and the only party which could now do that (in Edinburgh) was the second respondent. Incoming payments were also received by the second respondent from that date, and no longer by the first respondent. If those factors were not enough to show the occurrence of a relevant transfer then one certainly occurred no later than 31 October 2024. He touched on the insolvency issue also, to submit that the first respondent had not become subject to relevant insolvency proceedings until 8 November 2024. Thus, whichever was the true date of the relevant transfer, the first respondent was a solvent entity at the time.[48]Mr Soni relied on the position he had outlined in the fourth respondent’s grounds of resistance to the claims. He also substantially adopted the submissions of Mr McDougall. In terms of the sale agreement entered into on 8 November 2024 it was essentially all of the assets of the first respondent which were sold, suggesting a wholesale transfer. He suggested that the transfer date was on or around 5 October 2024 when a decision was taken to divert incoming funds to the two new companies’ bank accounts. Even if the transfer occurred as late as 31 October 2024, the first respondent was still solvent at that time, and remained so until 8 November 2024. The administrators took no decisions on its behalf before then, and in particular it was the two directors which handled the employee meetings and took decisions over who to dismiss or re-hire. Discussion and decision Could there be one or more transfer?[49]The law in this area is substantially settled and all parties agreed on the fundamental aspects. If there was one or more relevant transfer then it would be of a type within regulation 3(1)(a). None of the claimants argued that there was a service provision change.[50]As per Cheesman, the starting point was therefore whether there was an economic entity, meaning ‘an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary.’ The business of the first respondent clearly was, and no party argued that it was not. It must also be stable as confirmed by the ECJ, although that word does not appear in regulation 3(2). This should be taken to mean a venture with a degree of permanence rather than one which performs well financially. The fact that the first respondent was running at a loss did not prevent it being ‘stable’ in this context.[51]There can be a relevant transfer of part of a business if it is sufficiently distinct and severable. Whether it is or not should be tested after the alleged transfer rather than before. Commonly in reported cases, a multi-site operation which has a number of its sites taken over by different owners or operators can legally involve the relevant transfer of each site – see for example Fairhurst Ward Abbotts Ltd v Botes Building Ltd [2004] IRLR 304.[52]In this context the Edinburgh and Glasgow stores emerged as distinct and severable economic entities. Each was operated by a separate company and purchased the existing stock, fixtures and fittings and customer book of the first respondent as it related to that store. Despite common owners and directors, they were run separately with their own employees, premises (and landlords) and customers. Any existing customers of the first respondent were transferred according to the store they had used. Each new company had its own rights and obligations by way of a separate franchise agreement with Bo.[53]In considering whether there has been a relevant transfer to more than one transferee, it is important to assess whether the previous undertaking has been fragmented to a degree that it can no longer be said to exist after the change in question. However, in this case there was a clear structure to the first respondent’s operations, covering each of four retail locations and a separately let warehouse which served them all. Each store had a clear identity and, in the case of the Edinburgh and Glasgow stores, those were retained. They looked identical to the public, before and after. There was no suspension or disruption to trading. The majority of employees in each store continued to work there, simply becoming employees of the new company. The number of employees was reduced partially because Bo stipulated that and to reduce indirect costs. In short, most if not all of the Spijkers factors were present. When could any relevant transfer(s) have taken place?[54]It appeared on the evidence therefore that at some point there had been a relevant transfer of part of the undertaking that was the first respondent to each of the second and third respondents. A key question was: if so, when did each transfer occur? Celtec has settled that a relevant transfer can only occur on a single date and not over a longer period of time, even if effected by a number of steps or actions. Whether in each case there was a relevant transfer and, if so, when were interrelated questions: if a date could not be identified then there could be no transfer falling within TUPE.[55]Important events occurred on different dates. This could mitigate against the occurrence of a relevant transfer if there was insufficient evidence of a tangible enough shift on one particular date.[56]Those claimants who stated their position suggested that there were relevant transfers on 14 October 2024, primarily because that was the first day of each of the new franchise agreements, marking the point when the first respondent ceased to have any licence to operate in the way in which it had been doing and the two new companies gained equivalent rights in their respective city stores. Also at or around this time it became impossible to access the first respondent’s bank account, and staff asked customers to make any payments into the accounts of the second and third respondents. In that way it appeared that the first respondent had ceased trading and the second and third respondents had commenced.[57]These factors appeared initially indicative, but the evidence as a whole made the position less clear-cut. The switch in use of back accounts was driven by a decision by the bank to freeze the first respondent’s account and not because of any tangible change in how its day-to-day operations were being carried out. It was still serving the same customers who had attended stores, met with staff and agreed on a design package. Importantly, because the directors knew by early October 2024 that the company would be placed in administration, customer payments were separately recorded and continued to be accounted for as assets of the first respondent. This included not only for orders placed before the account was frozen, but new customer orders up to and including 31 October 2024. The second and third respondents only began taking credit for new orders, paying VAT on the items ordered from Denmark, and legally undertaking to fulfil them, from 1 November 2024 onwards. It had originally been envisaged by the directors and the UK representative of Bo itself that the date might have been later than that, and it was a further week before the second and third respondents had leases formally in place and had purchased the remaining stock and orders of the first respondent.[58]Returning to Cheesman, according to the evidence the economic reality was that customers of the first respondent transferred to the second and third respondents, but not until 1 November 2024. Up until then the second and third respondents were merely serving the first respondent’s customers on its behalf.[59]Those employees of the first respondent which were taken on by the second and third respondent started under their new contracts on 1 November 2024 also. Whilst it is not impossible for employees to transfer from one entity to another under TUPE without knowing at the time they have done, the evidence in this case was clear. The majority of staff based in Edinburgh or Glasgow would be retained there and become employees of a new company. A small number would not and be considered redundant and dismissed. A smaller number still of those engaged at the other two stores would be retained, either by moving to Edinburgh or Glasgow, or by being given a field sales role. All of those changes were effected by cessation of the existing arrangement on 31 October 2024 and proceeding under the new one the next day. New employment contracts were issued and the employees were paid by the new companies from that date. Those employees did not receive notice or redundancy pay from the first respondent nor claim for it. What happens (or sometimes crucially does not happen) to the affected employees is another potentially relevant factor under Cheesman and Spijkers. For those which did not transfer, the reason was that the new businesses had to manage lower staff overheads to be viable and not because the nature of the business itself had changed.[60]The formalising of leases and purchase of assets from the first respondent on 8 November 2024 was not sufficient to tip the balance against relevant transfers having occurred as above. Again as per Cheesman and Spijkers, the date of such events (or even if they occur at all) is not determinative. The factual reality by 1 November 2024 was that it was known that leases for premises and the purchase of assets would very soon be completed. It was only the procedural delay in appointing the administrator which held up the latter.[61]I could not agree with Mr Millar’s assertion that the first respondent became subject to ‘terminal’ insolvency proceedings at any relevant point in the timeline under consideration. Administration, being a process aimed at preserving some or all of the relevant business as a going concern, is not one ‘with a view to the liquidation of the assets’ – see the judgment of the Court of Appeal in Key2Law (Surrey) LLP v De'Antiquis [2011] EWCA Civ 1567 as referred to by Mr Soni, which confirms.
Conclusions
[62]The evidence in these claims when properly assessed pointed to there having been two relevant transfers, each of part of the original undertaking which was the business of the first respondent as a whole.[63]The relevant parts of that original undertaking – the Edinburgh and Glasgow stores - were sufficiently severable to represent stable economic entities in their own right.[64]The evidence pointed sufficiently clearly to those transfers having occurred to each of the second and third respondents respectively on 1 November 2024.[65]The claims will now be subject to further case management in order to identify the remaining issues and how they should best be determined.