Neil Todd identifies the employees who transfer in a TUPE situation, what happens to their terms and conditions when they do, the circumstances in which those terms and conditions can be changed and finally, at transfer connected dismissals.
Subject to the right to object (see below), employees who transfer are those:
- who are employed by the transferor immediately prior to the transfer, and
- who are “assigned” to the relevant grouping of employees.
This includes employees who would have been employed immediately before the transfer but were dismissed because of it. The result of this is that the transferee becomes liable for those dismissals.
Whether an employee is “assigned” to the relevant grouping of employees will depend on a number of factors including:
- the amount of time spent on one part of the business or another
- the amount of value given to each part by the employee
- the terms of the contract of employment showing what the employee could be required to do, and
- how the cost to the employer of the employee’s services was allocated between different parts of the businesses.
What transfers?
TUPE states that all liabilities, arising under or in connection with the contract, transfer automatically to the new employer.
These include any contractual liabilities such as unpaid wages; most statutory employment rights (such as continuity of employment); and liability for personal injury.
Although occupational pension schemes are not usually included, UK law requires transferees to make a minimum level of future pension benefits available for eligible transferring employees. The relevant provisions are not set out in TUPE but in the Pensions Act 2004 and the Transfer of Employment (Pension Protection) Regulations 2005 SI 2005/649.
TUPE also provides that collective agreements continue to apply as soon as the transferee acquires the undertaking following a relevant transfer.
However, the Court of Justice of the European Union has made clear that only the collective agreement, in force at the time of the transfer, transfers and employees cannot continue to benefit from collective agreements their union makes with their former employer following the transfer. This approach was confirmed in 2010 by the UK Court of Appeal in Parkwood Leisure Ltd -v- Alemo-Herron.
Can employers change employees’ terms and conditions?
Although the main principle underlying TUPE is to protect employees’ terms and conditions of employment, there is one exception when their employment transfers.
The transferor or transferee can agree with a transferred employee to vary their contract, as long as the sole or principal reason is:
- connected with the transfer that is an “economic, technical or organisational reason (ETO) entailing changes in the workforce”, or
- not connected with the transfer.
There is no statutory definition of an ETO reason although the government’s guidance provides that it is likely to include:
(a) a reason relating to the profitability or market performance of the transferee’s business (an economic reason)
(b) a reason relating to the nature of the equipment or production processes that the transferee operates (a technical reason) or
(c) a reason relating to the management or organisational structure of the transferee’s business (an organisational reason).
The ETO must “entail changes in the workforce”, which means a change in an employee’s job function or in the numbers of employees employed.
A change in job function means more than simply a change in job title. There must be some evidence that following the transfer the actual duties of the job are different.
If an employer is planning to terminate employees’ contracts (and therefore effectively dismiss them) in order to harmonise terms and conditions of employment, it is unlikely that this will involve either changes to job functions or a reduction in the number of employees. As such, the variation will be void and any dismissals due to the contract being terminated will be automatically unfair (see below).
Can employers offer less advantageous terms and conditions?
Regulation 4(9) of TUPE provides that, if a relevant transfer involves or would involve a “substantial change” in working conditions to the material detriment of an employee whose contract transfers, the employee may treat the contract as having been terminated and they are then treated as having been dismissed.
To constitute a “substantial change” the treatment must be of such a kind that a reasonable worker could, or would, take the view that it was to their detriment. Examples might include a reduction in pay or a change in workplace.
However, because this is treated as a dismissal, it is still open to the employer to argue that it was not unfair. For example, in a reorganisation situation, the employer is likely to seek to argue the dismissal was fair on the grounds of some other substantial reason (SOSR).
Whether the employer acted reasonably in dismissing on these grounds will depend on whether the employees were consulted about the proposed changes and whether the majority of the workforce accepted them, as well as balancing the effect of the change on the employees with the employer’s ability to meet their business needs.
What are transfer-connected dismissals?
Regulation 7(1)(a) of TUPE 2006 defines an automatically unfair dismissal as one where the sole or principal reason for the dismissal is:
- the transfer itself, or
- a reason connected with the transfer that is not an ETO reason.
Regulations 7(2) and (3) state that the dismissal is potentially fair:
- where the sole or principal reason for the dismissal is an ETO reason entailing changes in the workforce (subject to normal unfair dismissal provisions), and
- where the sole or principal reason is unconnected with the transfer (again subject to normal rules on unfair dismissal).
The burden is on the employer to show that there is an ETO reason. It does not have to apply to the whole of the workforce - it can just apply to those employees who are transferring.
What are pre-transfer dismissals?
If a pre-transfer dismissal is either not connected to the transfer or is for an ETO reason, the normal unfair dismissal rules apply and any claims would be brought against the transferor.
If a pre-transfer dismissal is by reason of the transfer or is connected to the transfer but is not for an ETO reason, the dismissal will automatically be unfair and liability for the claim will transfer to the transferee, even if the employee was no longer employed at the time of the transfer.
If the employer can establish an ETO reason, the reason for the dismissal will either be SOSR or redundancy. Where the reason for the dismissal is actually redundancy, employees are still entitled to a redundancy payment.
Where the employer argues SOSR, the Tribunal will take into account the reasonableness of the employer’s actions. This will include whether or not the employer consulted with the employees.
What is the right to object?
Regulation 4 of TUPE contains an express right for an employee to object to transferring. In that situation, the transfer terminates the contract, but they are not treated as dismissed for any reason.
This means that any remedy for unfair dismissal, constructive or otherwise, is not available to the employee. However, this will not prevent an employee who objects to the transfer because of a substantial change in their working conditions from resigning and claiming a material detriment or constructive dismissal.