Harmonising Terms under TUPE

We are frequently asked to advise on how an employer who has inherited staff under a TUPE transfer can change their terms so as to bring them into line with their existing workforce – or how long they have to wait before doing so.

When employees transfer to a new employer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), they transfer to the new employer on their existing terms of employment.  The new employer may not change those terms if the change in terms is connected to the transfer – any attempt to do so is void, and any dismissal related that is automatically unfair.  The exception to this is where the employer can show that the change in terms is related to what is known as an economic, technical or organisational reason entailing a change in the numbers or functions of the workforce (an ETO reason).

Harmonising terms between the newly inherited staff and existing employees is not an easy thing to do, but there are some things which will help.  For example, leaving any change until a period has passed from the transfer will make it more difficult for the employees to claim that the change in terms was related to the transfer. However, the passage of time will not in itself mean that a change cannot be connected to the transfer.  This was illustrated by a Court of Appeal case a few years ago where it was successfully argued that a proposed change in terms following a transfer 13 years earlier (under the previous 1981 version of TUPE) could still be connected to the transfer.  Another solution might be to change the terms of all employees, not just those who transferred, as this will make it harder to show that the change was connected to the transfer.

The recent case of Manchester College v Hazel  in the Employment Appeal Tribunal (EAT) illustrated the difficulty which employers can face. In that case, Manchester College successfully bid for Offender Learning contracts from the Learning and Skills Council. The Claimants were employed by the Learning and Skills Council and transferred to Manchester College under TUPE.

After the transfer Manchester College discovered that there were hidden costs which they had not appreciated in the due diligence exercise prior to the transfer. The college began a process of costs savings, which included a request for 300 voluntary redundancies. Following this, the college decided to make further savings by harmonising terms and conditions across the 37 different contracts of employment which it had inherited. The Claimants were asked to agree to salary reductions. They objected, and were dismissed by the college, but they were also offered employment on the new terms which the college wanted to impose. They accepted the new contracts, continued in employment and brought claims for unfair dismissal.

The Employment Tribunal and the EAT both found that the reason for the change was connected to the transfer and that, although there had been a reduction in the workforce due to the voluntary redundancy programme, that programme had ended and the employer’s aims in dismissing and reemploying was simply to harmonise their terms of employment.  As such, the dismissals were automatically unfair.

In terms of remedy, the Tribunal ordered that the Claimants should be reemployed on their new contracts, but on their old rates of pay.  The EAT agreed and said that this was the only practical way of recognising and addressing the breach of TUPE which had occurred.

As this case illustrates, harmonising terms following a TUPE transfer can be extremely hazardous.  The Government is consulting about changing TUPE to make it more employer friendly, but the detail and timing of any changes is still speculation. In the meantime, employers wanting to change the terms of employment of staff who have transferred to them under TUPE should most certainly seek specialist advice.

TUPE can be a minefield – but we can help. We have experience of advising on all sorts of TUPE transfers, including outsourcing and asset purchases. If you have something you’d like to run past us, please call us on 01243 836840 for a no obligation chat or email us at [email protected].

Please note that this update is not intended to be exhaustive or be a substitute for legal advice. The application of the law in this area will often depend upon the specific facts and you are advised to seek specific advice on any given scenario.