TUPE or not TUPE? No transfer of vicarious liability to third parties under TUPE - Court of Appeal confirms in ABC v Huntercombe

In ABC v Huntercombe (No. 12) Limited & Others [2026] EWCA Civ 1161, the Court of Appeal has confirmed that an employer's vicarious liability to a third party for the alleged torts of its employees does not transfer to a new employer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE"). 

The decision provides important clarity on the scope of Regulation 4(2)(a) and will be of significant interest to businesses involved in TUPE transfers. 

Background

ABC was a patient at Huntercombe Hospital in Maidenhead, a privately run psychiatric facility owned and operated by Huntercombe (No. 12) Limited ("Huntercombe"). ABC alleged that, during a four-month period at the hospital in 2018/2019, she was mentally and verbally abused by staff and restrained on over 200 occasions. 

In around March 2021, Huntercombe's undertaking was transferred to Active Young People Limited ("AYPL") for the purposes of TUPE. All relevant events giving rise to ABC's claim occurred before the transfer. 

ABC initially sued Huntercombe alone. However, it was then discovered that Huntercombe was in liquidation. Although public liability insurance was in place, it carried a deductible of £250,000 per claim, which was thought likely to wipe out most or all of ABC's claim. Faced with this difficulty, ABC joined three further defendants: AYPL, and two doctors (D3 and D4) who had been her consultant psychiatrist and responsible clinician and who had been employees of Huntercombe before, and of AYPL after, the transfer. 

ABC's case against AYPL was that Huntercombe's vicarious liability for the acts and omissions of D3 and D4 had been transferred to AYPL under Regulation 4(2)(a) of TUPE. We are told that there are more than 50 similar claims brought by other claimants against the same parties. 

In Bernadone v Pall Mall Services Group Limited [2001] ICR 197, employees injured at work brought claims against their employer based on the employer’s own negligence. The Court of Appeal held that those liabilities, being owed directly by the employer to the employees, transferred to the transferee under the TUPE Regulations because they arose “in connection with” the contracts of employment. The Court also held that the employer’s right to claim under its employer’s liability insurance policy transferred alongside the underlying liability, because the insurance right was ancillary to a claim that itself fell within Regulation 4(2)(a). The transferee inherited both the liability and the entitlement to claim on the transferor’s policy.

The judgment below

HHJ Bird (sitting as a High Court judge) rejected ABC's case. He held that the connection between the transferor's liability and the contract of employment had to be "direct", in the sense of being a liability that the transferor owed to an employee. The employer's vicarious liability to a third party did not fall within that category and was therefore outside the scope of the transfer. ABC appealed.

The Court of Appeal's reasoning

The Court of Appeal unanimously dismissed the appeal. Lord Justice Coulson, delivering the leading judgment, identified five principal reasons for his conclusion. 

Start with the Directive, not the Regulations

The Court emphasised that the correct starting point was the EU Acquired Rights Directive, from which TUPE derives. The primary purpose of the Directive is clear: "the protection of employees in the event of a change of employer, in particular to ensure that their rights are safeguarded." The Court observed that the obligation to construe domestic legislation consistently with Community law was "both broad and far reaching", permitting departure from the strict and literal application of the words Parliament had chosen. 

First: the Directive does not extend to third-party liabilities

Given the purpose of the Directive, Regulation 4(2)(a) does not extend to liabilities owed by the transferor to third parties. Importantly, it was conceded that an employee has no relevant right against the transferor in respect of the transferor's vicarious liability to a third-party claimant. Vicarious liability is a "secondary liability, parasitic always on the direct liability of the employee to the third party" - a legal construct to enable a claimant to recover against a better-funded employer, rather than a right belonging to any employee. 

Second: vicarious liability provides no "protection" to the employee

The Court rejected the argument that vicarious liability protects employees in a practical sense. “An employee is not entitled to expect his employer to bear the brunt of any claim brought by a claimant arising out of his or her acts and omissions.” On the contrary, pursuant to Lister v Romford Ice and Cold Storage Co. Limited [1957] AC 555, the employer is entitled to recover from the employee a full indemnity for any damages paid out as a result of vicarious liability. That principle was recently restated without qualification by the Supreme Court in Lifestyle Equities CV v Ahmed [2025] AC 1. 

Third: the phrase "in connection with" must be read purposively

Although the phrase "in connection with" in Regulation 4(2)(a) is potentially very wide, the Court held that it must be read in the light of the purpose of the Directive. Since vicarious liability to a third party does not give rise to a right on the part of the employee under the contract of employment, and forms no part of the employer's protection of the employee under that contract, such liability does not arise "in connection with" the contract of employment for the purposes of Regulation 4(2)(a), and so does not pass under that Regulation.

Fourth: the Regulations as a whole support this reading

The Court noted that Regulation 11 sets out detailed requirements for the provision of "employee liability information" by the transferor to the transferee before a transfer, with sanctions under Regulation 12 for non-compliance. The Court noted that Regulation 11 sets out detailed requirements for the provision of "employee liability information" by the transferor to the transferee before a transfer, with sanctions under Regulation 12 for non-compliance. Coulson LJ observed that these provisions were concerned, "in essence" with notifying the transferee of "the liability that the transferor has for claims made against it by its employees". There is nothing in the Regulations addressing claims by third parties. If Parliament had intended that vicarious liability to third parties should transfer, similar protective provisions would have been necessary. Their absence was, the Court found, "not … an omission, but the end result of deliberate policy." 

Fifth: the position would be counter-intuitive

Standing back, the Court considered it "counter-intuitive" that a third party could bring claims against a transferee about events occurring before the transfer, of which the transferee knew nothing and had no right to know anything. In this case, there were potentially more than 50 such claims, worth potentially millions of pounds, yet AYPL had no entitlement under the Regulations to know anything about them when it agreed to the transfer. The Court concluded that such an outcome would need clear permissive wording in the Directive or the Regulations. There was none. 

The existing authorities

The Court reviewed the existing case law and found it entirely consistent with its analysis. In Baker v British Gas Services [2017] EWHC 2302 (QB), a High Court decision, an employer's vicarious liability for the wrongdoing of its employees which caused injury to another employee was held to have transferred — but that was a liability the transferor owed to an employee, falling squarely within the scheme of the Regulations. Similarly, in Bernadone, claims by injured employees based on the employer's own negligence were claims owed to the employee and were properly transferred.

The only previous authority directly on point, Doane v Wimbledon FC, a county court decision which had found that vicarious liability did transfer, was not followed. The Court identified a "central flaw" in that decision: Judge Robinson had nowhere grappled with the fact that a negligent employee had no right in respect of the transferor's vicarious liability and therefore no such right could be transferred. 

Comment

This is a significant and welcome clarification. Despite TUPE having been in force for over forty years, the question of whether an employer's vicarious liability to third parties transfers under TUPE had never been authoritatively decided. The Court of Appeal has now provided a clear answer: it does not. 

The reasoning is rooted firmly in the purpose of the Directive: to safeguard the rights of employees, not to provide a route for third parties to pursue claims against a transferee for events that occurred under the transferor's watch. 

From a practical standpoint, several points are worth noting:

• Transferees can take comfort that they will not inherit vicarious liability to third parties for events occurring before the transfer. This removes what would otherwise have been an unquantifiable and unknowable risk in any TUPE transfer. 
• Due diligence and warranties remain important. Although the Court has confirmed that vicarious liability to third parties does not transfer, transferees will still wish to carry out thorough due diligence and obtain appropriate warranties and indemnities in respect of pre-transfer liabilities more generally. The decision does not diminish the importance of understanding the transferor's litigation and claims history.
• Third-party claimants bear the risk. Where a transferor becomes insolvent or is otherwise unable to meet claims, third-party claimants cannot look to the transferee as a substitute defendant. This may have significant consequences in cases, such as this one, where the transferor has entered liquidation and insurance cover is limited.
• The decision underscores the employee-focused nature of TUPE. The entire regulatory scheme, from Regulation 4 through to the information and consultation obligations, is designed to protect employees. Practitioners advising on TUPE transfers should bear this firmly in mind when assessing the scope of liabilities that may or may not transfer.
• The insurance dimension. Bernadone decided that the employer's right to claim on its employers’ insurance policy transferred alongside the underlying liability. This was one of the points ABC sought to rely upon in Huntercombe. The argument ran: if insurance rights transfer with the underlying liability, that demonstrates the Regulations contemplate third-party involvement, and so vicarious liability to a third party should equally transfer. Coulson LJ rejected this reasoning, drawing a clear distinction. In Bernadone, the insurers were indeed third parties to the contract of employment, but their involvement was triggered by the employee's right to claim against the employer. The insurance followed the employee's claim. It was an ancillary right attached to a liability that itself fell squarely within Regulation 4(2)(a). 

What about direct liability to third parties?

The case addressed the issue of vicarious liability to third parties, but what of direct liability? A transferor might be directly liable to a third party as well as, or instead of, vicariously liable. Does that liability transfer? 

Whilst not addressed directly, the reasoning very strongly suggests that the answer would be the same. The decisive factor is whether the liability arises “in connection with” the contract of employment, construed in light of the Directive’s purpose of safeguarding employee rights. A liability owed to a third party, which engages no right belonging to any employee, falls outside that purpose.