The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) specifies that any dismissal of an employee before or after a relevant transfer will be automatically unfair where the sole or principal reason for the dismissal is either:
- the transfer itself; or
- a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce (called an ETO reason).
If the dismissal is for a transfer-related reason but the employer establishes an ETO reason, then the dismissal is potentially fair for redundancy or some other substantial reason (SOSR) provided the employer acted reasonably in relying on that reason to make the dismissal.
In the case of Meter U Ltd v Hardy & Others the Employment Appeal Tribunal (EAT) considered claims that had been brought for transfer-related dismissals. The case involved individuals who had been employed as meter readers by Scottish Power but were transferred to Meter U Ltd when Scottish Power lost the contract for meter reading. However, Meter U Ltd operated in a different way and did not employ meter readers. Instead they operated through franchises with independent limited companies (which were typically owned by individual meter readers). At the stage of the transfer, Meter U Ltd consulted with the meter readers and offered them the opportunity of forming franchise companies. Most of them refused and were made redundant. Some brought claims in the employment tribunals for automatic unfair dismissal for a transfer-related reason. The case was decided in their favour, but Meter U Ltd appealed this decision to the EAT.
The original Employment Tribunal decision focused on the term “workforce” in TUPE. They decided that this included a wider class of persons than employees and incorporated everyone working in a business, including franchisees. The EAT disagreed with this and said that limited company franchisees were corporate bodies with a separate identity from their directors or controlling shareholders. Therefore, they were excluded from the term “workforce”.
As the franchises were excluded, there were changes in the workforce (i.e. a reduction in the number of employees) and an ETO reason was made out by Meter U Ltd. The dismissals were potentially fair on grounds of redundancy. The EAT remitted the cases back to the Employment Tribunals to decide whether the dismissals were fair.
The decision applies a common sense approach to transfers where TUPE applies, particularly those termed as “service provision changes” where services are transferred to another business following tendering. There may be advantages for service providers to set up franchise models to operate contracts where TUPE might be an issue, provided there is a genuine need for this type of model (i.e. it is not a sham) and it is beneficial to do so.
The team at Pure Employment Law are experts at dealing with knotty TUPE issues. If you would like to talk through a situation you are dealing with, or if you need advice on any aspect of employment law, please contact any member of the Pure Employment Law team 01243 836840 or [email protected].