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The Court of Appeal has held that, on an employer's insolvency, arrears of pay include arrears of equal pay (even if not yet quantified) and can be claimed from the National Insurance Fund (NIF) in Graysons Restaurants Ltd v Jones and others.

In this case Duchy Catering Ltd went into administration and its assets were sold to Graysons Restaurants. TUPE applied and there were outstanding equal pay claims, although the precise quantification of these claims had not yet occurred. Regulation 8(5) of TUPE provides that liability for unpaid sums due to employees from an insolvent transferor do not transfer to the transferee provided that the sums are reimbursable by the Secretary of State. The government guarantees certain debts in an insolvency situation, which include up to eight weeks' arrears of pay, subject to the statutory maximum limit on a week's pay. These sums are paid from the NIF.

Equality clauses were incorporated into the employees' contracts, as it had been conceded that they were performing work of equal value to their comparators. If there was no material factor defence available, then the employees had a legal entitlement to be paid in accordance with the equality clauses for work they performed before the appropriate date. To the extent to which the liabilities exceeded the statutory limits these would transfer to the transferee, Graysons.

Take note: It is clear following the decision in Graysons Restaurants that liability for arrears of equal pay will transfer to the transferee on an insolvency. A transferee buying an insolvent business will need to be aware that they could potentially be taking on substantial liabilities.

This article is taken from HR Law - May 2019.