Hearts administrators holds Tynecastle staff’s fate

SARAH CHILTON
Published on 19/06/2013 00:00

WHEN any firm enters administration it can be a deeply worry­ing time for their employees, and Hearts will be no exception, no matter whether those employees are footballers or office staff.

The most encouraging aspect of the situation, however, is the fact that administration involves an attempt to keep the business alive. Employees’ contracts of employment are not terminated merely because a company has gone into administration.

The administrator is appointed as an agent for the company and, therefore, this appointment does not constitute a change of ownership for the company. As such, employees should keep their jobs for the time being while the administrators are in charge.

The administrators can, during the first 14 days of an administration, terminate the employees’ contracts, but if after that 14-day window they have not terminated the contracts, or re-negotiated terms, they will be deemed to have “adopted” the contracts and the employees should continue to be paid as before. Sometimes in that 14-day window administrators may make changes or dismissals with a view to making the business more attractive to a buyer, or to allow the business to stay alive and cut costs, without liability for the administrator.

If an administrator does not dismiss employees within 14 days of appointment, any wages or salary due to employees after that date rank as an expense of the administration. This means that they are fully paid – and paid ahead of the distribution of assets to unsecured creditors and any creditors holding a floating charge. The non-playing staff at Hearts are likely to be on permanent contracts of employment. Should the administrators then look for a buyer for the business (as is often the case) the position of those permanent staff (and most likely the players – depending on individual contractual arrangements) is protected at least to some degree by the rules in TUPE (the Transfer of Undertakings (Protection of Employment) Regulations 2006), before and after the transfer.

If the administrator finds a new owner, the staff would then transfer to the new owner and their employment would be protected, on the same terms and conditions are before. The staff in that case are protected from dismissal by both transferor (Hearts) or transferee (the buyer). There are certain circumstances in which a transferor (Hearts) or transferee (the buyer) can dismiss employees and that dismissal is fair, namely, where there is an “economic, technical or organisational reason” – which is a reason which entails changes in the make up or numbers of the workforce. It is also possible for the transferor (Hearts), the administrator or the transferee (the new owner) to agree certain changes to the terms of employment that are made with the intention of safeguarding employment by ensuring the survival of the business (or part of it).

In other words, the administrators are entitled to look at the remuneration packages and other terms of any of the employees with a view to reducing them and reducing the financial burden. It would, for example, be possible to agree a lower salary or a reduction in benefits where the business is in administration. This is a substantial relaxation of the normal rules regarding variation of terms in TUPE transfers, where such variations are usually void.

What the administrators can’t do is make changes for the purposes of selling the business – the changes have to be to ensure the survival of the business to continue to conduct the business. This was something which came to light in a case brought against Crystal Palace FC, when that club was sold in 2010, by dismissed employees.

The case of playing staff is complicated by the fact that they are registered with their national football association, which has its own regulations regarding the players’ contractual rights and remedies. Nonetheless, as employees, they still have employment rights and benefit from the protection of TUPE.

Where the Hearts staff’s jobs could be under threat is if the club is eventually declared insolvent, petitions for liquidation, and then, like Rangers, emerges under new ownership. In liquidation proceedings, employees benefit from little protection from dismissal. In that scenario, however, the employees should be entitled to a statutory redundancy payment paid for, if necessary, through the government’s National Insurance Fund. Alternatively, the new employer may wish to retain their services but would not be obliged to do so on the same contractual terms.

• Sarah Chilton is head of employment at Edinburgh solicitors Murray Beith Murray.

Taken from the Scotsman