Wilson & others v St Helens BC
Meade and other v British Fuels Limited
(Court of Appeal 10 July 1997, unreported)

The Transfer of Undertakings legislation (TUPE) is designed to protect the rights of employees when a business changes hands. This includes situations where the provision of services is contracted out.

It is often said that TUPE preserves those rights at day one. Workers are entitled to ask - how long does this protection last and can the employer make adverse changes to the contract after the transfer?

The answer is - as with many legal queries - "it depends". The Employment Appeal Tribunal (EAT) in Wilson said that a change in contract, where the reason for the change was the transfer, was ineffective and unenforceable, even where the employees agree or carry on working without protest.

A different EAT tried to get round this in Meade. These contradictory conclusions led to appeals to the Court of Appeal which has taken a different approach to that taken by the EAT in both cases.

The Court of Appeal accepts that, if there is no dismissal and employees therefore transfer from one employer to another, an employer cannot change terms and conditions (even by agreement) where the reason for the change is the transfer itself. This part of the EAT decisions in Wilson and Meade remains.

However both cases had a particular feature: when the transfers occurred the employers did not think that TUPE applied. The employers in both cases dismissed employees and paid redundancy, the employees were then re-engaged by the new employer.

The Court of Appeal had to decide whether that dismissal was effective: did it bring to an end the contract with the previous employer or was the dismissal of no effect because TUPE meant that contracts automatically transferred to the new employer? 
The Court of Appeal's answered "it depends". It depends on whether the dismissal by the old employer before the transfer was because of the transfer or because of "an economic, technical or organisational reason entailing changes in the workforce" (an "ETO reason" TUPE, Regulation 8(2)).

The Appeal Court decided that if the dismissal was "solely" because of the transfer of the business, then any dismissal is not only automatically unfair it is also ineffective, because of Litster v Forth Dry Dock [1990] AC 546. This means the employee remains employed on the old terms and conditions which transfer to the new employer.

This is what happened for Mr Meade and his colleague employed by British Fuels. This leaves unanswered questions, not least that Regulation 8 of TUPE provides that a transfer-related dismissal is automatically unfair. This presupposes that the dismissal is effective: there can be no unfair dismissal if the dismissal has no effect. The Appeal Court reached a different decision in the case pursued by Mr Wilson and his colleagues.

In that case, members of staff employed by the old employer were either redeployed or were made redundant. Some were offered and accepted jobs with worse terms and conditions with the new employer: this last group are the employees with whom the case is concerned.

The Industrial Tribunal appeared to say that their contracts were transferred, but because the employers could have dismissed them for an ETO reason, they were entitled to make changes to the contract. This was rejected by the EAT.

The Appeal Court arrived at an unfavourable decision for employees, but by a different route. This approach depended on the Court's Þnding that the home for boys in the St Helens case could not have continued without cuts in staff and pay, whoever was running it. This meant that the dismissals and offers of new jobs were for an ETO reason.

The Court of Appeal went on to say that, although a dismissal before the transfer (where the reason was the transfer) was invalid, a dismissal where there was an ETO reason was not. This means that where an employer dismisses for an ETO reason before a transfer, the dismissal is valid and the employee's contract does not transfer to the new employer. The employee is left only with a claim for unfair dismissal: she or he cannot claim a continuing entitlement to the old terms of contract.

What are the implications? Remember that these cases both arose when employers and employees did not appreciate that TUPE may apply, so notice of dismissal was given and redundancy payments made. In most recent instances, employers will have accepted that TUPE applies, so no dismissal will have taken place. This means that the new employer cannot change terms and conditions, even by agreement, where the reason for the change is the transfer itself.

More problems may arise in future where employers try to avoid existing contractual rights by dismissing employees at the point of transfer and the new employer employs them on worse terms and conditions. This will only help employers if the dismissal and re-engagement are for an ETO "entailing changes in the workforce". If it is only a change in terms for existing staff, with no changes in the workforce, it is automatically unfair (see Berriman v Delabole Slate [1985] IRLR 305) and invalid, so liability for existing contracts will pass to the new employer on the same terms and conditions.

There is a risk that employers will use this decision in an attempt to get round TUPE. There will be pressure on employers to dismiss everyone before transfer so the new employer can take on existing staff on new terms. This is unlikely to work.

First, the dismissal must be for a genuine "ETO". Secondly, it must be before the transfer. Thirdly, the existing employer (be it public sector or contractor) must pay out redundancy payments to all staff affected; payments they will not get back, whatever the outcome of the case.

This is a financial burden employers will be keen to avoid if they are trying to save money by putting a contract out to tender, particularly where redundancy payments above statutory levels apply - for example in local government.

The case may well go further. In the meantime, employers would be wrong to assume that they can avoid TUPE in all cases by the simple expedient of dismissal and re-employment. This is likely to expose both old and new employers to potential claims.

It remains the case that changes introduced because of the transfer are invalid. Only dismissals, or agreed changes which would have occurred even if the transfer had not taken place, should fall outside the protection of TUPE.