Where an employee’s employment has transferred to a new employer under TUPE, the employer will be able to make contractual changes if it has an ETO reason for doing so. However, changes imposed simply because the employer wishes to harmonise terms and conditions between two groups of employees will not be valid.
What is TUPE?
Legislation called the Transfer of Undertakings (Protection of Employment) Regulations 2006 or “TUPE” apply where a business or part of a business is sold. Under TUPE, the employment of the employees working in that business transfer automatically to the new owner (the transferee).
The purpose of TUPE is to protect employees working in businesses which are sold. It therefore contains certain restrictions on what the transferee can do in respect of the employees who transfer to it. For example, the general position is that TUPE prevents a transferee from dismissing staff for a reason related to the TUPE transfer.
Staff who are dismissed for a reason that is directly related to a TUPE transfer will have claims for ‘automatically’ unfair dismissal.
Changing terms and conditions
A transferee is also prevented under TUPE from making changes to the terms and conditions of employment contracts of employees for a reason related to the transfer.
On a TUPE transfer, it is common for employers to want to harmonise the terms of those new employees coming in, with the terms of its existing employees. This may be to ensure fairness and equality between the two groups or to assist with administration. The starting position is that changes introduced by a transferee simply in order to harmonise terms and conditions will not be valid.
There is some flexibility for transferees
However, where a transferee can show that they had an ETO reason entailing changes in the workforce, they can make valid changes to existing terms and conditions in employment contracts (and lawfully dismiss employees, subject to following a fair procedure).
What is an ETO reason?
ETO stands for ‘economic, technical or organisational’. Tribunals have tended to interpret the ambit of ETO reasons restrictively. Case law has established that an ETO reason must usually relate to the numbers and functions of staff members. However, it has more recently been suggested that “a change in the workforce ” may cover other changes such as to the skills or qualifications required to perform the work. Government guidance issued in January 2014 explains that:
• an economic reason may relate to the profitability or market performance of the transferee’s business
• a technical reason may relate to the nature of the equipment or production processes which the transferee operates
• an organisational reason may relate to the management or organisational structure of the transferee’s business
• a change in function of the workforce could involve a new requirement on an employee who held a managerial position to enter into a non-managerial role, or a move from a secretarial to a sales position
In addition, following changes to the law in 2014, it is now clear that a change of business location following a TUPE transfer will qualify as an ETO reason.
How can I recognise an ETO reason?
As a rule of thumb, where it can be demonstrated that changes would have happened anyway, regardless of whether a TUPE transfer had taken place and/or the changes affect the whole workforce (not just the transferring employees) there is likely to be a stronger argument that the ETO reason defence applies. A desire to simply harmonise terms and conditions of employment with existing staff is unlikely to suffice.
Company X acquires a group of 20 new staff under TUPE when it buys the part of a business in which they work. It issues them with new contracts that contain the same terms as all its existing staff. The reason for doing this is simply to harmonise terms between the two groups of employees. The terms in the new contracts are less beneficial than the terms that the 20 employees previously enjoyed. As there is no ETO reason, the changes are void 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 needs because it has lost one of its major customers. This 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. Because the redundancy dismissals are shown to be for an ETO reason and were carried out fairly, the dismissals are lawful.