An ‘ETO’ reason is an ‘economic, technical or organisational reason’ to make staff changes, or changes to terms and conditions, following a TUPE transfer.

Staff who are dismissed for a reason that is directly related to a TUPE transfer will have claims for ‘automatically’ unfair dismissal. However, a transferee employer may be able to defend such claims if they can show an ETO reason.

The ambit of an ETO reason is not unlimited. Case law has made it clear that an ETO reason must relate to the numbers and functions of staff members. An effort to harmonise terms and conditions of employment with existing staff will not usually suffice.

From next year, new rules are likely to mean that a planned change of location of work can count as an ETO reason.

Employers who want to vary staff terms of employment must also demonstrate that the changes are for an ETO reason, otherwise the changes may be held to be invalid.

The reasoning behind this rule is to protect staff who transfer to a new employer and ensure that they can only be dismissed, or have their terms of employment changed, for a clear business reason.

Example: Company X inherits a group of 20 new staff under TUPE. It issues them with new contracts that are in similar format to those given to all its other staff. The terms set out in the new contracts are less beneficial than the terms that the 20 staff previously enjoyed. As there is no ETO reason, the change is ineffective and the transferring staff retain the right to claim their previous terms of employment.

Later Company X carries out a re-organisation of staff based around its business need which leads to some of the transferring staff being made redundant. Company X carries out a fair process, including selection from both the existing and transferee workforces. The redundancy dismissals are for an ETO reason and are fair.

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Updates: For employers: TUPE | For employees: Unfair dismissal |
Tagged with: ETO defence | TUPE | Unfair dismissal |

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