TUPE and changes to contract
Labour & European Law Review Weekly Issue 29 - December 1998 16 December 1998
British Fuels Ltd v Meade and Baxendale
Wilson and others v St Helens Borough Council  IRLR 706
When there is a transfer of undertaking covered by TUPE, the contracts of employment should transfer to the new employer unchanged. The question which has vexed the UK courts is whether an employer can change those terms and conditions, and if so how.
The Court of Appeal attempted to deal with the issue in these cases, but only created further confusion (see  ICR 387 and issue 13). Its approach was criticised by the Employment Appeal Tribunal in Cornwall County Care v Brightman (see  IRLR 228).
The House of Lords has now given its view. It is not a view which will encourage certainty or consistency in future transfers.
The two cases
Two cases were joined together for the House of Lords hearing. Each concerned a situation where there was a transfer of a business at a time when neither employer nor employees appreciated that TUPE might apply to the transaction. Existing staff were dismissed and re-employed on less favourable terms. In the St Helens case there was an overall reduction in the number of staff.
The cases involved two questions.
The first was whether the dismissals validly brought to an end the pre-transfer contracts of employment leaving employees only with a remedy for unfair dismissal, or whether the dismissals should be treated as void and ineffective so that the employees remained entitled to their old terms and conditions.
The second was whether employees who remained on their old terms and conditions could validly agree with their new employers changes in those terms and conditions where the transfer was the reason for the change.
Is dismissal valid?
The House of Lords decided that the dismissals were valid, even if they were for a reason connected with the transfer. The European Directive leaves it up to EU countries to decide on remedies for breaches of the law.
Regulation 8 of TUPE provides a remedy of unfair dismissal. This means a dismissal for a reason connected with the transfer is regarded as bringing the contract to an end, but giving a right to remedies for unfair dismissal. Liability for the unfair dismissal becomes the responsibility of the transferee who has taken over the business.
Can existing contracts be changed?
Because of its view on the first question the House of Lords did not strictly need to deal with the second question. It did, however, attempt to do so, whilst saying that it would have referred the issue to the European Court.
The House of Lords accepted that an agreed variation in contract is invalid where the reason for the change is the transfer itself and no other reason. This applies whether the dismissal takes place before the transfer, at the time of transfer or later.
However, where the reason for the changes was something other than merely the transfer, an agreed change will be effective. Where there was an economic, technical or organisational reason for the change, a Tribunal may conclude that the transfer was not the reason for the change and that the change is valid.
This means that where an employer dismisses workers on or before the transfer, the workers cannot insist on a job with the transferee on the same terms and conditions. Their only remedy is to claim unfair dismissal.
This means that employers can make changes to contracts through unlawful dismissals. This undermines the protection of the Directive.
Unfair dismissal compensation is not adequate to deal with this abuse. European law may well require that the only adequate remedy in these circumstances would be reinstatement on the previous terms and conditions: an approach adopted by the Employment Tribunal in the Hillingdon Hospital case. Certainly any attempt to impose a cap on the level of compensation would breach European law.
Employers who try to get round TUPE by dismissing and re-employing workers face substantial claims. If all of the workforce are re-employed on new terms and conditions, the sackings will be automatically unfair. Even if reinstatement is not awarded, all the workers will be entitled to a basic award for unfair dismissal plus compensation for the reduction in earnings. If the dismissals result in a reduction in staff, they may still be unfair and will also involve the need for redundancy payments.
Employers who do not take the dangerous step of dismissing staff can secure changes by agreement where the transfer is not the reason for the change. As the House of Lords observed, it may be difficult to decide whether the variation was attributable to the transfer or some separate cause.