Changing employment terms after a TUPE transfer: EAT signals greater flexibility

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) apply where there is a "service provision change" i.e. an outsourcing, in-souring or change of contractor as well as where there is a transfer of an undertaking such as the sale of a business.

Post transfer changes to employment contracts

A transferee will often wish to harmonise the employment terms and conditions of employees coming into its workforce via a TUPE transfer with those of its existing employees.

However, such an attempt to harmonise terms will be void. This is because under TUPE a transferee employer can not agree changes to a transferring employee's contracts of employment if the reason for the change is:

• the transfer itself; or
• a reason connected to the transfer which is not an economic, technical or organisational reason entailing changes in the workforce.

Even if an employee initially agrees to such a change they can subsequently insist on the re-instatement of their previous terms.

However, a change to employees' terms and conditions following a TUPE transfer which is neither because of the transfer itself nor connected to it will be valid.

Automatic unfair dismissal

Similarly, an employee who is dismissed (either before or after a TUPE transfer) will be considered to be automatically unfairly dismissed if the reason, or principle reason, for the dismissal is:

• the transfer itself; or
• a reason connected to the transfer which is not an economic, technical or organisational reason entailing changes in the workforce.

However, a dismissal which is neither because of the transfer itself nor connected to it will be potentially fair but the employer must still follow a fair procedure.

Latest decisions

The reason for any change to terms and conditions or dismissal is a matter of fact for a tribunal to decide. In two recent cases, the Employment Appeal Tribunal (EAT) has given helpful insight into how tribunals should approach such cases.

Smith v Trustees of Brooklands College

Part-time, teaching assistants transferred under TUPE to Brooklands College in August 2007. In reviewing the rates of pay of all teaching assistants at the college, Brooklands' HR director discovered that the teaching assistants who had transferred were in fact paid as if they worked full-time. This was highly unusual and contrary to their trade union's own guidance.

Agreement was eventually secured with the individuals that their rates of pay should be reduced to bring them into line with other part-timers over a phased period starting in January 2010. The teaching assistants then brought claims for unlawful deductions from wages, arguing that the agreed changes were void due to TUPE.

The EAT upheld the tribunal's decision that the variations were not void, the reason for the change was not connected to the TUPE transfer in 2007.

The EAT acknowledged that "but for" the employees transferring to Brooklands college, the HR director would not have sought to reduce the employees' pay, but it stressed that the correct legal test was not "but for", but "what was the reason"?

The EAT accepted that the reason for seeking to change the terms and conditions was that the teaching assistants were not being paid in accordance with standard practice and that the steps taken by Brooklands college could have been taken at any stage regardless of the TUPE transfer.

Enterprise Managed Service Limited v Dance

In January 2009 Enterprise Managed Services Limited changed the terms and conditions of its appliance engineers. It introduced different hours and performance related pay in order to increase efficiency.

In April 2009, Enterprise won a contract from Williams to provide building engineering services and inherited their employees under TUPE.

After the transfer Enterprise consulted with the ex-Williams employees about changes to their terms and conditions along the lines of the changes it had previously introduced for its existing workforce.

It was unable to secure agreement to the changes from 20 employees and they were dismissed and re-employed on the new terms. The employees brought claims for automatic unfair dismissal claiming that the reason for the change to their terms and conditions and subsequent dismissal was connected to the transfer.

The EAT overturned the tribunal's majority decision that the claimants were dismissed in order to harmonise terms and conditions between the in-coming and existing workforce. It agreed with the minority view of the Employment Judge that the reason for the change and eventual dismissal was that the employer needed to increase productivity, and if the employees did not become more efficient there was a serious risk it would lose the contract in the future. The fact that the terms and conditions were harmonised was a by-product of the principle reason in the minds of management when it invoked the proposal to change terms and conditions.

The EAT said:

 ".there is a straight line linking what occurred in the Respondent's business in the early part of 2009 to effect productivity and what occurred in it post-transfer for those who as it happens were inherited from Williams who were not on the productivity scheme."

".since it is open to an employer to effect productivity changes in accordance with the ordinary law, this does not become unlawful when there has been a relevant transfer if the reason is connected to that drive for productivity changes".

Comment

Employers who inherit staff on a TUPE transfer often feel frustrated that they can not manage employees in the way they would wish to do so because of the prohibition on changing terms and conditions under the regulations. Although it is widely understood that simply harmonising terms is not permitted, having different groups of employees on different terms and conditions can lead to real business issues. These latest decisions demonstrate that in appropriate circumstances there is potential to change employees' terms and conditions lawfully.

Cases

Smith and others v Trustees of Brooklands College UKEAT/0128/11

Enterprise Managed Services Ltd v Dance & others UKEAT/0200/11