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TUPE: a step-by-step guide to the rules around relevant transfers and dismissal
In De Marchi v London United, the Employment Appeal Tribunal shone a light on the complicated and fiddly provisions contained in the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) relating to relevant transfers and termination of employment. Here is our step-by-step guide to the rules as they are currently understood:
- The automatic transfer principle: Wherever there is a ‘relevant transfer’ under TUPE (either a business transfer or a service provision change), the contracts of employment of all employees assigned to the business or service transferring, will automatically transfer to the new owner/new service provider.
- Automatic unfair dismissal if dismissal is by reason of transfer: If an employee is dismissed by reason of a TUPE transfer, then their dismissal will be automatically unfair.
- … unless it is a dismissal for an ‘ETO reason: If an employer can show that a dismissal is by reason of the transfer but is for an ‘economic, technical or organisational’ (ETO) reason entailing changes in the workforce, then it will not be automatically unfair. It will fall to be judged under normal unfair dismissal principles. ETO reasons include essential cost-saving requirements, using new processes or equipment and making changes to the structure of an organisation. There must be ‘changes in the workforce’ in terms of number, function or change in work location.
- Resignation due to changes to working conditions: There can be a deemed dismissal where the employee resigns because the transfer involves, or would involve, a substantial change in working conditions to the material detriment of the employee.
- Effect of objecting to the transfer: There is generally no dismissal (and therefore no right to claim unfair dismissal) if the employee objects to the transfer. The objection operates to terminate the contract of employment, but the situation is not treated as a dismissal. This usually leaves the objecting employee with no grounds for claim against anyone.
- BUT – if the reason that the employee has objected to the transfer is because of a substantial change in working conditions to his material detriment, the contract will be regarded as having been terminated for that reason and the employee shall be treated as having been dismissed by the transferor. Any remedy would lie against the outgoing owner/service provider in such a case.
This last situation was illustrated in De Marchi itself. The employee in question was in scope to transfer following the re-tendering of a London Bus route. The transfer would have involved a substantial change in the employee’s ‘home’ depot to his substantial detriment (adding hours to his commute to work each day). He objected to the transfer in writing. He refused to accept that his objection would operate to end his employment (as would usually happen under Regulation 4(7) TUPE) – stating instead that he wanted to be made redundant. The EAT were left to sort the whole thing out and work out who, if anyone, the Claimant could claim against.
The EAT held that the Claimant had validly objected to the transfer under Regulation 4(7) which would, ordinarily, have left him with no claim against anyone. However, the EAT held that, as the reason for his objection was the substantial change in working conditions to his material detriment, his objection should be treated as a dismissal – a dismissal which, if it were found to be unfair, the outgoing service provider would be liable for.
The outcome of this case was that a bus operator who had lost a contract for a route found itself legally responsible for the dismissal of an employee who it did not actually dismiss; who would have transferred to the new route provider if it wasn’t for his objection to the transfer; and who was only objecting to the transfer because of the plans of the new route provider and not because of anything which the outgoing provider had done.
It places in stark relief the importance of well-drafted indemnities being negotiated in relevant transfer situations. Any standard indemnity dealing with who takes the risk of resignations where there are allegations of changes to working conditions to the material detriment of in-scope employees, should, in light of this case, be expanded to cover objections to transfer in the same circumstances.