Legal Update: Dismissals due to harmonisation of terms after a TUPE transfer were automatically unfair

2 April 2014

Before 31 January 2014, when changes to TUPE came into effect, a dismissal was automatically unfair if the sole or principle reason for it was the TUPE transfer itself.  If the reason for the dismissal was not the transfer itself but was connected to the transfer then it was automatically unfair unless it was due to an economic, technical or organisational reason entailing changes in the workforce (known as an ETO).

In Hazel v The Manchester College around 1,500 employees were transferred under TUPE when the College took over a contract for the provision of education services in prisons.  After the transfer, in order to make the contract economic, the College proposed around 200 redundancies and changes in the terms of employment of the remaining staff including significant reductions in pay.  The claimants initially refused to accept the new terms and were given notice of termination. Before that notice expired they agreed to the new terms and so they continued working after the notice but received the reduced pay under the new terms.  They then brought claims for unfair dismissal.

The Employment Tribunal found that the dismissals were automatically unfair and ordered re-engagement.  This decision followed an earlier Court of Appeal decision, Delabole Slate v Berriman, which found that a dismissal in order to bring about a change in terms was not for an ETO reason because, although it was for an economic reason, it did not entail changes in the workforce because the same workforce would remain after the change, albeit on new terms. 
The College’s appeal to the EAT was unsuccessful and it appealed again to the Court of Appeal.

The College argued that the dismissals were not automatically unfair, as although they were for a reason connected to the transfer, there was an ETO reason because the changes in terms of employment and the redundancies needed to be considered together as a package and therefore there were changes in the workforce.  The Court of Appeal rejected this argument and said that the reason for dismissals had to be considered in each case; here the reason was the change in terms, not redundancy, and it made no difference that if insufficient employees agreed to the change in terms more redundancies would be required. 

The Court of Appeal also agreed that the order for re-engagement made by the Employment Tribunal was the correct remedy.  It enabled the employees to continue in employment on their previous salary, which could remain frozen until the College’s pay scales caught up. 

Following the recent changes to TUPE the outcome would probably be different.  Under the new rules, dismissals would only be automatically unfair if the reason for the dismissal is the transfer itself and there is no ETO.

Please note also that variations to terms of employment to employees’ detriment will now only be void (even where employees agree to them) where the TUPE transfer itself is the sole or principal reason for them and even then the change will be effective if there is an ETO reason for the change or other limited exceptions apply.  In fact, it is difficult to see how there could be an ETO reason for a change in terms in the light of the decision in Delabole Slate v Berriman; that the need to change terms of employment does not amount to an ETO.  Variations in terms which are for a reason connected to the transfer are no longer void irrespective of whether or not there is an ETO.  As harmonisation of terms following a transfer will normally be for a reason connected with the transfer rather than by reason of the transfer itself, from now on such changes in terms will normally be valid if the employees agree to them.  If the employees refuse the new terms and are dismissed, the dismissals will not normally be automatically unfair, although they could still be unfair on general principles, for example, because there was insufficient business need to change the terms or there was inadequate consultation with employees about that change.

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