TUPE: pre-transfer vicarious liability to third parties does not transfer

ABC v Huntercombe (No. 12) Ltd and others [2026] EWCA Civ 1161

The Court of Appeal has confirmed that a new employer does not inherit, under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”), the former employer’s vicarious liability to third parties for torts allegedly committed by employees before the transfer. The decision clarifies an important limit on the automatic transfer of liabilities and will be relevant to businesses acquiring or transferring an undertaking where historic claims may emerge after completion.

The background

The case arose from claims concerning events at Huntercombe Hospital, a privately run psychiatric facility. The claimant, referred to as ABC in the proceedings, alleged that staff had mistreated her while she was receiving treatment in 2018 and 2019. The appeal concerned who could be liable for those allegations following a later business transfer, not whether they were true.

In March 2021, the hospital’s undertaking and the employment of two clinicians transferred from Huntercombe (No. 12) Ltd to Active Young People Ltd (“AYPL”). The events underlying ABC’s claim all occurred before the transfer.

ABC initially brought her claim against Huntercombe. After Huntercombe went into liquidation and concerns arose about the available insurance, she also sought to pursue AYPL. Her case was that Huntercombe’s vicarious liability had transferred with the employees under TUPE. The Court was not deciding whether any defendant was liable on the facts.

The legal issue

Regulation 4(2)(a) provides that, on a relevant transfer, the transferor’s rights, powers, duties and liabilities “under or in connection with” a transferring employment contract pass to the transferee. ABC argued that the wording included vicarious liability arising from employees’ alleged acts in the course of their work.

The Court accepted that “in connection with” is wide, but held that it must be read in context and in light of TUPE’s purpose and structure.

Why the Court dismissed the appeal

Coulson LJ, giving the leading judgment, began with the purpose of the Acquired Rights Directive, from which TUPE derives: protecting employees and safeguarding their rights when their employer changes. The Court considered that regulation 4 could not be read in isolation from that purpose.

The Court’s central reason was that the employee had no relevant right against the former employer in respect of its vicarious liability to a third-party claimant. Vicarious liability is secondary: the employee is alleged to have committed the tort, and the employer may also be liable because of their relationship. That gives a claimant another potential defendant, but it does not create a contractual right for the employee to require the employer to meet the claim.

ABC argued that transferring liability would nevertheless protect employees in practice. The Court rejected this. An employee is not entitled to expect an employer to absorb the cost of a claim arising from the employee’s acts. Under Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555, an employer which pays damages for an employee’s tort may, in principle, seek an indemnity from the employee. The Supreme Court recently restated that principle in Lifestyle Equities CV v Ahmed [2025] AC 1. In the Court’s view, the employee was not protected by the transfer of vicarious liability.

The Court also looked at TUPE’s information-sharing provisions. Regulation 11 requires employee liability information, including certain claims brought by employees and claims the transferor reasonably believes an employee may bring against the transferee. Regulation 12 provides remedies for failing to supply it. There is no equivalent disclosure requirement for third-party claims. The Court considered that this supported its conclusion: a transferee should not become liable for claims about which the statutory scheme gave it no right to receive information.

The wider structure of TUPE pointed in the same direction. Its provisions address employee matters, including collective agreements, trade union recognition, dismissals and pensions. The Court considered it counter-intuitive for a transferee to become liable for events involving third parties, without involvement or a right to know about potential claims before the transfer. Clear wording and a disclosure mechanism would be expected if that result were intended.

The Court also noted the practical effect of the statutory scheme. The Directive allowed Member States to make the transferor and transferee jointly liable for some pre-transfer obligations. The UK Regulations did not adopt that option. If a liability falls within regulation 4, it passes to the transferee; if it does not, the transferee is not liable by reason of the transfer. The Court considered that extending regulation 4 to unknown third-party claims would therefore have a substantial effect on transferees, without corresponding provisions to notify them of the risk.

The Court also noted that, despite TUPE having existed for more than 40 years, no authoritative decision had transferred an employer’s vicarious liability to a third-party claimant. The only decision directly on point was Doane v Wimbledon FC [2007], a County Court case. The Court of Appeal declined to follow it because it had not addressed the absence of a relevant employee right.

How this fits with earlier cases

The decision does not mean that every liability connected with an employee’s work is excluded from TUPE. In Bernadone v Pall Mall Services Group Ltd [2001] ICR 197, employees injured at work brought claims against their employer. The employer’s liability to those employees transferred because it was owed to them and arose in connection with their employment. The Court in Huntercombe distinguished this from a third party’s claim based on vicarious liability.

The Court also considered insurance. In Bernadone, the employer’s right to claim under its policy followed the employee’s claim that had transferred. The insurer’s involvement arose from the employee’s right against the employer; that did not support transferring liability to a third-party claimant. As the vicarious liability did not transfer in Huntercombe, the Court did not need to decide whether insurance rights could transfer independently.

In Baker v British Gas Services (Commercial) Ltd [2017] EWHC 2302 (QB), the employer’s vicarious liability for injury to another employee transferred. That claim fell within TUPE’s employee-focused framework and could be reflected in the employee liability information.

The distinction is not simply whether liability is “vicarious”; it matters who holds the claim and whether it concerns employee rights protected by the Regulations.

Practical implications for businesses

For a transferee, the ruling reduces the risk that TUPE alone will make it liable for the transferor’s vicarious liability to third parties for pre-transfer torts. It is relevant where a business provides services to the public and a claim may arise after completion about earlier events.

The decision is not a substitute for due diligence. A transferee should identify known or potential claims, review claims and incident records, examine insurance and understand any deductibles or exclusions. The employee liability information process is not a complete record of third-party risks, so enquiries may need to address them separately.

The transfer agreement should allocate responsibility for historic liabilities clearly. The parties may consider warranties, disclosure obligations and indemnities, together with provisions on insurance, claims and cooperation after completion. The scope and limits of any protection should be considered carefully. The decision concerns TUPE’s automatic effect; it does not prevent the parties from allocating financial responsibility by contract.

For a transferor, the decision does not extinguish its underlying liability to a third-party claimant. It confirms only that this vicarious liability does not pass under regulation 4. The transferor may remain exposed, subject to the facts, contractual arrangements and insurance. The Court recognised that its decision could affect claimants where the transferor is insolvent or cover is limited, but considered that this could not justify extending TUPE beyond its purpose.

The Court decided the issue of vicarious liability for alleged torts committed by employees before the transfer. It did not determine whether an employer’s own direct liability to a third party transfers under TUPE. Nor did it decide the underlying allegations against the clinicians or other staff. Those questions will depend on the legal basis of any claim and the facts of the particular case.

That distinction matters in practice. A claim based on an employer’s own alleged failure, such as an unsafe system of work or a failure in the way a service was managed, may raise different issues from a claim that depends solely on vicarious liability for an employee’s tort.

The judgment does not resolve those questions. Parties should identify the duty said to have been breached, who owed it and how the claim relates to the transferring employment contract before drawing conclusions about the effect of TUPE.

The Court of Appeal has clarified that TUPE does not make a transferee a substitute defendant for a transferor’s pre-transfer vicarious liability to third parties. Businesses should still investigate historic risks and document how they are to be managed. Early advice can help ensure that the transfer terms, disclosure process and insurance arrangements address those risks clearly.

KTS Legal advises businesses on TUPE transfers, employment obligations and the allocation of risk in business sale agreements.