The jobs of more than 100 teachers and support staff are at risk due to "botched" plans to close two Merseyside schools and replace them with a free school.
As a result of Sefton Council's plans to shut two struggling secondaries - St George of England Specialist Engineering College and St Wilfrid's Catholic High - the schools' governors joined forces and applied to open a free school. Their bid was approved by the Department for Education, and Hawthorne's Free School is due to open in September. The free school has invited staff from the closing schools to apply for jobs.
But Sefton Council, the employer of staff at the existing schools, believes they should automatically transfer to the new school under the Transfer of Undertakings (Protection of Employment) Regulations, known as TUPE. This would oblige Hawthorne's to continue their current pay and conditions - and assume liability for any redundancy payments.
The governors of the free school have refused to comply, arguing that the DfE has advised them that Hawthorne's is a "completely new" entity.
In a report, the council said it has been advised that TUPE is "more likely than not" to be applicable, and told staff that it will not be making any redundancy payments to employees who fail to get a job at the new school. However, the report concedes that the decision is "ultimately one for interpretation by court or employment tribunal".
"The situation, it is recognised, gives rise to a stressful and difficult period for employees," the report said. "If factors do not change, there is a real risk of litigation."
Unison, the union representing support staff at the schools, has joined the row, threatening both the school and the council with legal action unless the situation is resolved.
"The council's botched handling of these school closures - and their replacement with a controversial new free school - is a disgrace," said Unison's head of education Jon Richards. "Not only are local schoolchildren and parents facing uncertainty, but dedicated school support staff and teachers are facing the dole queues in a dismal jobs market. To pile on more misery by taking away their redundancy pay is a further bitter blow for families in these tough times.
"We are warning Sefton Council and Hawthorne's that Unison will issue a legal challenge unless this situation is resolved. These dedicated staff should be allowed to carry on working," Mr Richards added.
The council report also reveals that final approval for the free school is not expected from the DfE until July. This leaves the authority with "significant risks" because, should the plans fall through, it is "unlikely" to be able to draw up contingency arrangements in time for the new school year - potentially leaving the council in breach of its statutory duty to educate young people in the area.
The free school was not available to comment, but Sefton Council told TES that it had been advised by lawyers that TUPE conditions should apply to all staff transferring from the closing schools to Hawthorne's.
"We have notified trustees at Hawthorne's about this," a council spokesman said. "This situation is not yet resolved and meetings are planned between us and the free school to try to find a solution. We have kept staff and the unions regularly updated and will continue to work with all the parties involved."
100 - Number of teachers and teaching assistants employed at the closing schools.
60 - Number of jobs available at the new free school.