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TUPE (Part 2) – Dismissals and changing terms and conditions

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AIMS – You will remember that last week we gave you an introduction to TUPE, which has hopefully given you a pretty good grasp of when TUPE does and doesn’t apply.

This week, we are continuing with the TUPE theme as promised, and we are going to look in more detail at what circumstances you can:

  • Make changes to employees’ terms and conditions, and
  • Dismiss staff where there has been, or will, be a TUPE Transfer.

You should note that there have been some changes this year to TUPE, and so we will look at these changes.

Why would I want to change terms and conditions or dismiss staff on a TUPE transfer?

Imagine that your company has just taken over another company, known as ‘Company A’. All of Company A’s employees have automatically transferred to you under TUPE.

The employees that have transferred under TUPE may have different terms and conditions to the staff you already have. Also, you may be worried that your company now may have too many employees for the amount of work that needs to be done. You may then want to think about doing the following:

  • Changing the terms and conditions of the employees that have come over to you to make them consistent with your staff; and
  • Look to dismiss some of the people that have transferred as you think you may have too many staff.

What can I do in this situation?

The OLD position under TUPE was that any changes made to transferring employees’ terms and conditions or dismissals will be void or automatically unfair where:

  • The change or dismissal was due to the transfer; or
  • The change or dismissal  was for a reason connected to the transfer that did not fall under the TUPE ETO exception (we will look at this later).

To bring an automatic unfair dismissal claim, employees still need the 2 years’ service required.

HOWEVER, as of 31 January 2014, this has changed. The changes to TUPE have made it a little bit easier to change employees’ terms and conditions or dismiss them. The NEW position is as follows:

Changing Terms and Conditions

Changes to employees’ terms and conditions will be void under TUPE if the sole or principal reason for the change is the transfer itself, unless:

  • The reason for the change is an ETO reason (which will look at this later) and you agree the change with the employee, or
  • The terms of the employee’s contract allow you to make the change anyway.
  • Changes can be made to collective agreements (which may be incorporated into employees’ contracts) 12 months or more after the date of the transfer and generally the new position after the change is no less favourable for employees.

Dismissing Employees

  • If the sole or principal reasonfor dismissing an employee is the TUPE transfer, then the dismissal will be automatically unfair.
  • However, where the sole or principal reason for dismissing an employee is an ETO reason, or
  • The dismissal can be shown to be for genuine redundancy reasons and you have followed a fair dismissal procedure then the dismissal maybe fair.

What is an economic, technical or organisational (ETO) reason?

There is no definition that is set in stone. However, the courts have decided that it must be concerned with the day-to-day running of the business. The things an ETO reason is likely to include are:

  • Reasons relating to profitability or market performance (Economic);
  • Reasons relating to a change to nature of equipment or production processes (Technical); and
  • Reasons relating to management or organisational structure (Organisational).

The best way to get this into context is to look at some examples:

5.1.1          Example 1 (economic)

Mr Smith takes over a pub and inherits the staff from the previous owner. After the transfer he finds that, without making staff reductions, the business would not be able to run profitably. He decides to dismiss some of the staff. In this situation, it is likely that the Employment Tribunal would find that there is an economic reason.

 

5.1.2          Example 2 (technical)

ABC Ltd take over a manufacturing business. ABC Ltd introduces new machinery that an employee does not have the necessary skills to operate and so dismisses this employee. This may be seen as a technical reason (subject to looking to provide reasonable training).

 

5.1.3          Example 3 (organisational)

XYZ Ltd takes over a financial services business. It’s clear that XYZ Ltd runs its business and has a different staffing structure to the business it took over from. Therefore, XYZ Ltd changes the terms and conditions of the staff that transferred to reflect the new structure (for instance, they change their roles and responsibilities to fit in with their structure). This may be seen as an organisational reason.

But, this isn’t enough on its own to justify a change or dismissal. In addition to an ETO reason, this reason must also entail changes in the workforce.

What does ‘entailing changes in the workforce’ mean?

The courts take a narrow approach when looking at what amounts to an ETO reason entailing changes in the workforce. They have restricted this to mean:

  • Changes in the numbersemployed;
  • Changes in the functionsperformed by the employees; or
  • A change to the workplace location. This is a new addition following the changes this year and means that where a workplace location moves, this may be considered as a fair ETO reason. The changes expressly include a change of location as an ETO reason where it constitutes a redundancy.

Examples of changes in the workforce could include:

  • Genuine redundancy (changes in numbers);
  • Re-organisation (where job function changes for instance from a managerial to a non-managerial role, or from a secretarial role to a sales role);
  • A change in employees’ roles because of differences in operational structures (function).

An ETO reason does not necessary need to entail changes to the entirety of the workforce; it may be enough that change affects a body of the employees who have transferred.

As a result of the narrow approach taken, it is unlikely that changes of financial aspects of an employee’s contract of employment (for instance, their salary or benefits) would be covered by the ETO reason entailing changes in the workforce. This is because these kinds of changes do not involve changes in the numbers employed, the functions performed, or the workplace location. Therefore, you would find it difficult to reduce an employee’s salary or benefits because of a TUPE transfer.

You cannot use an ETO reason to harmonise terms and conditions with existing employees (i.e. to make all of your employees’ terms and conditions the same).

If the Employment Tribunal does find that there was an ETO reason, they must also find that the action you took was fair in the circumstances.

Summary

If the sole or principal reason for changing an employee’s terms and conditions is the TUPE transfer, these changes will be void. However, changes may be valid if there is an ETO reason (provided the change is agreed), or the employee’s contract allows you to make the change.

If the sole or principal reason for dismissing an employee is the TUPE transfer, it will be automatically unfair. However, a dismissal may be fair if the reason for the dismissal is an ETO reason, or there is a genuine redundancy and you have followed a fair process.

Going back to the example at the very start, you would not be allowed to change the new employees’ terms and conditions just to make them consistent with your existing staff (as this is harmonisation).

You may however be able to dismiss staff that you ultimately find are redundant and find you are unable to keep on and maintain profitability of the business. However, you would be expected to follow a proper redundancy procedure and look to include both old and new employees in this exercise.

If you need any further advice or guidance on any area of employment law, TUPE in particular, then please contact the team for a confidential chat.

Watch out next week for the final of our 3 part TUPE guide on informing and consulting.

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