The variation game
Labour & European Law Review Weekly issue 88 - April 2004 07 April 2004
After two TUPE transfers, several redundancy exercises and a number of compromise agreements, the employees in this case must wonder where it's going to end.
In the latest instalment, the employment appeal tribunal (EAT) has decided in Solectron Scotland Ltd v Roper and Ors (IDS Brief 752) that their enhanced redundancy terms had not been varied, and the compromise agreements were enforceable.
How did it all get so complicated?
In October 1990, STC/Nortel took over a BT factory in Wales. Under the TUPE (Transfer of Undertakings) regulations that governed the transfer, STC was bound to honour the enhanced redundancy terms which formed part of the employees' contracts with BT.
There were a number of redundancy exercises between 1992 and 1999, during which time the union agreed different redundancy terms to those which their members had enjoyed under BT. Each time, the terms varied slightly.
Then in 2000, Solectron Scotland Ltd took over the undertaking and a year later made 110 employees redundant. The employees argued they were still entitled to the BT redundancy terms; Solectron said those had been altered following the agreements in the 1990s or due to custom and practice.
In addition, Solectron pointed to the fact that a number of employees had signed compromise agreements and had thereby forfeited any enhanced redundancy rights that they might have had.
Had the terms been varied?
The employer appealed against the tribunal's finding that the BT terms had not been varied. They argued custom and practice - firstly in the 1992 to 1994 redundancy exercise and then by the three subsequent ones.
But the EAT agreed with the tribunal. It said that since the case of Devonald v Rosser and Sons (1906, 2KB 728), the practice had to be 'reasonable, notorious and certain' to satisfy the definition.
In this case, there were different terms at each redundancy exercise, so no certainty. The practice wasn't reasonable since it seemed to depend on the whim of the employer as to the terms offered. And nor was it notorious since the terms were not consistently applied.
The EAT doubted if a custom could ever vary an existing contractual right. In the event that it could, the practice would have to be established for a very long time, before an employee could be said to have accepted a contractual right that was less favourable than the original one.
The EAT also disagreed with the employer's argument that the new terms had been accepted because the employees had continued to work under them without protesting. In Jones v Associated Tunnelling Co Ltd (1981, IRLR 477) it was established that if the changes don't immediately impinge on the employees, they cannot be said to have accepted them.
What about the compromise agreements?
The employer tried to argue that Regulation 12 did not affect these agreements because they allowed the employees to retain their rights. It was just that they couldn't enforce them. The EAT didn't buy that, saying that rights that cannot be enforced are rights that have been limited or excluded.
The case of Foreningen af Arbejdsledere i Danmark v Daddy's Dance Hall A/S (1988, IRLR 315) made clear that employers cannot vary a contract after a transfer, if the variation is solely because of that transfer.
The tribunal decided that the compromise agreements arose 'solely out of the transfer', because they were drawn up as a result of the redundancies following the transfer to Solectron.
But according to the EAT, the employer was not trying to vary the employees' contracts with the compromise agreements, but to compromise a dispute that was bound to arise about their value.
And this would have happened in any event, not just as a result of the transfer. The compromise agreements had not varied the terms of the contract 'solely by reason of the transfer'. They were therefore enforceable.