Wilson & others v St Helens Borough Council [1996] IRLR 320 (EAT)
Merckx v Ford Motor Company Belgium SA (Case 171/94) (ECJ)
For many years trade unions have recognised the benefits of the Transfer of Undertakings (Protection of Employment) Regulations 1981 - but also their limitations. For although TUPE protects terms and conditions at the point of transfer, those terms are not set in tablets of stone.
The new employer has the power to make changes to the contract through the traditional routes. These include agreement to changes - either individually by employees or collectively by unions - or acquiescence by continuing to work under new terms without an effective protest.
The employer's ability to make changes has now been substantially curbed by the EAT decision in Wilson v St Helens, in which Thompsons were instructed by UNISON.
In October 1992 St Helens Borough Council took over a Community Home from Lancashire County Council providing education for boys with behavioural problems. At the time, neither employer accepted that TUPE applied.
Out of 169 staff, 102 applied for jobs and 76 were offered and accepted jobs in the new structure on less favourable terms.
In March 1993 the unions raised the issue of TUPE and started proceedings claiming entitlement to the old terms and conditions. The Industrial Tribunal rejected the claims but was overturned by the EAT.
The EAT said that if the reason for changes in terms was the transfer, then the changes were invalid and ineffective, even if they were agreed by the employees. The Directive and the Regulations prohibit even a variation by consent if the transfer is the reason for changes to terms and conditions.
This also meant that the employees were not stuck with the new terms simply because they carried on working under those terms following the transfer. Where the reason for changes to terms and conditions is the transfer, the changes cannot be validated either by accepting the new terms or by working under the new terms without protest.
The EAT rejected the argument that the reduced terms should be allowed because they were justified by an "economic, technical or organisational reason" - an "ETO" reason - because this defence only applied where the employees had been dismissed.
This decision has provoked a hostile response from employers. It is important to put it in context.
The new employer still has the same ability to secure agreed changes as did the old employer, but neither of them can do so if the transfer itself is the reason for the changes.
If there is some genuine business reason other than the transfer itself, then the employer can make changes if agreement is secured. If there is no reason other than using the transfer as an opportunity to cut costs by reducing pay and benefits, it is right that TUPE should prohibit this.
It is said that employers can get round the decision by dismissing employees at the time of transfer for an ETO reason. This will only protect employers who genuinely dismiss for an ETO reason, not merely because of the transfer (see Tuck v BSG [1996] IRLR 134), and will only protect employers if the reason entails a "change in the workforce".
This means that dismissals to impose less favourable terms on the existing workforce who are then re-employed on new terms would be automatically unfair (see Berriman v Delabole Slate 1985 IRLR 305).
In the Merckx case, the staff refused to transfer when a vehicle dealership was taken over because their new pay was linked to turnover and was not guaranteed. They claimed unfair dismissal and redundancy. The Directive provides that if an employee resigns because the transfer involves a substantial change in working conditions, that is a dismissal related to the transfer. The European Court said that a change in remuneration will always be a "substantial change" for these purposes, so the employer will be responsible for the dismissal.
The Merckx case is also interesting because the Court said there was a transfer even though the operation was carried out under a different name, from different premises and with different facilities, with no transfer of assets and with only a minority of employees transferring. This is a wide definition of a TUPE transfer.
Merckx reinforces the approach taken by the High Court in Betts v Brintel Helicopters [1996] IRLR 45 in which Thompsons acted for members of GMB and MSF and is a welcome response to fears aroused by last year's Rygaard decision [1996] IRLR 51 in the European Court. Merckx suggests that the restrictive approach taken in Rygaard can be confined to the facts of that case. The EAT has said Rygaard only excludes from the Directive short, fixed term contracts for specific projects (see Tuck v BSG [1996] IRLR 134 where Thompsons acted for UNISON members).