Case update (2): TUPE – harmonisation of terms and conditions

Summary:  Can an employer harmonise terms and conditions following a TUPE transfer without unfairly dismissing employees, if a redundancy process has taken place, but where such process is not connected to the employees’ dismissal?

No, says the Court of Appeal in Hazel and another v The Manchester College available here.

This confirms the earlier decision of the EAT which we reported on in our September 2012 Newsletter TUPE – Harmonisation of Terms and Conditions.

Facts:  Manchester College (‘the College’) won a number of Offender Learning Contracts from the Learning and Skills Council which resulted in the transfer of 1,500 staff, including Mrs Hazel and Mrs Huggins (the claimants) to the College in August 2009.

Six months after the TUPE transfer the College discovered unforeseen financial difficulties and began to implement costs savings, including proposing approximately 200 redundancies and then harmonising terms and conditions across 37 different contracts of employment.

Following the end of the redundancy exercise the claimants were informed that they were not at risk of redundancy. They were instead offered alternative employment on the new contracts which involved, among other things, a pay cut of 13.2% and 18.5% respectively. The employer’s rationale for the new terms was that, without them, more redundancies would be necessary.

The claimants refused to agree to the new terms and were dismissed by letter in July 2010. Following the dismissal, the College once again offered employment on the new contracts, which the claimants accepted, and returned to work. However, they brought claims arguing that their dismissals had been automatically unfair and sought, among other things, reinstatement on their old conditions.

The Tribunal upheld the claimants’ claims. The College appealed, arguing that as the change to terms and conditions had been linked to a potential need to make redundancies across the College, the dismissals should have been regarded as an ETO reason entailing changes in the workforce.

The EAT held that the reason for the claimants’ dismissals was their refusal to sign new contracts. Although this was potentially an ETO reason, the Tribunal had been correct in holding that in the circumstances it was not a valid ETO reason. The EAT confirmed that in order to be a valid ETO reason, there must be either a change in the numbers of workers or a change in their job functions. As the claimants had both been told they were not at risk of redundancy and the redundancy process had ended by the time of their dismissals, there was no link between their redundancies and harmonisation of terms. The dismissals were automatically unfair.

It was not enough that the College was making some other employees redundant alongside the harmonisation process. It is the reason for dismissal of a particular employee that must entail a change in the workforce. The fact that others are dismissed for the reason of redundancy (a change in the number of the workforce) does not alter the fact that the particular employee may have been dismissed for the reason of harmonisation.

The EAT also upheld the Tribunal’s order for re-engagement, meaning that the claimants continued to be employed on the new terms and conditions but with their higher pre-dismissal salaries preserved (although these were to be frozen until colleagues pay caught up).

The College appealed to the Court of Appeal. The Court of Appeal dismissed the appeal.

Implications: The effect of this decision is that, where an employer wishes to harmonise terms and conditions following a TUPE transfer, it will be unable to establish an ETO defence by virtue of the fact that it has made other employees redundant.

We note that, following the recent reforms to TUPE (see our January 2014 Newsletter Government reforms (1): TUPE changes), dismissals are now automatically unfair only if the “sole or principal reason” is the transfer (subject to the ETO exception), rather than a “transfer-connected” reason.  It will be interesting to see whether these changes affect the Tribunals’ approach to TUPE-related dismissals in the future.  However, in the meantime, employers should plan and implement carefully any cost-saving proposals that involve dismissals following a TUPE transfer.  Tribunals are likely to continue to look at the facts in detail and, where appropriate, divide up these proposals into ones that do, and do not, constitute an ETO reason entailing changes in the workforce.

This is a complex area and if you are planning to harmonise terms and conditions of employment following a TUPE transfer then please do seek advice on your particular circumstances and do not hesitate to contact Luke Menzies, at luke@menzieslaw.co.uk, or a member of the team, for further assistance.