TUPE Podcast Series: Changing Terms and Conditions

In this seventh episode of our TUPE Podcast Series, Louise Keenan will discuss the restrictions on changing terms and conditions for employees who are transferring. 
 
 In this episode, Louise will cover:

• Restrictions on changing terms and conditions
• Permissible changes to terms and conditions, including those for economic, technical, or organizational (ETO) reasons 
• Examples from case law

If you have any questions in relation to TUPE, please contact our employment lawyers for advice.

Transcript

Hi, my name’s Louise Keenan and I’m an Associate in the employment team at Clarkslegal.

In today’s podcast we will focus on the restrictions on changing terms and conditions for transferring employees.

The overall aim of TUPE is to protect the rights of the transferring employees. Therefore, the automatic transfer principle means that employees assigned to the relevant business or organised grouping, transfer to the transferee on their existing terms and conditions of employment (with some limited exceptions).  In addition, TUPE imposes restrictions on the ability of either the transferor or the transferee to change the employee’s terms and conditions. 

This restriction on changing terms and conditions is in addition to the general law relating to contract changes i.e. that changes can only validly be made in accordance with the terms of the contract or with the agreement of the parties. 

Under TUPE, any change to terms and conditions of employment is void if the sole or principal reason for the change is the transfer itself. This restriction applies to both:

• Transferees  who seek to make changes to the transferring employees’ terms and conditions after the transfer; and
• Transferors who seek to make changes to the transferring employees’ terms and conditions before the transfer (for example where they want to make the business look more attractive to a buyer).

The Department for Business, Innovation and Skills produced Guidance which suggests that there must be some extenuating circumstance – some factor other than the transfer itself – which has led to the change to terms and conditions.  This is always a question of fact and degree for the Tribunal to determine in the event of a dispute.

Let’s look at a simple example:

If, following the transfer, the employee accepts a promotion with their employer that results in a new contract, then the reason for the change is because of the new role not the transfer. However, if an employee is given a new contract to harmonise their contract with the rest of the transferees’ workforce once they’ve moved over then this will be a change because of the transfer.   

If you make a change that is prohibited by TUPE then it is void and legally unenforceable.  

In the past it seemed that only changes which were detrimental to the employee were void and any changes that were beneficial to the employee (even if the sole or principal reason for the change was the transfer) could be valid and enforceable against the employer.  However a recent Employment Appeal Tribunal decision has cast doubt on this and suggested that all changes may be void if they are prohibited by TUPE. Whether they’re detrimental or beneficial. 

So what changes will be permitted?

• Changes unrelated to the transfer – like the promotion example we gave earlier;
• Changes where the sole or principal reason is an economic, technical or organisational reason entailing changes in the workplace (also known as an ETO reason), and the change is agreed by the employee; 
• If the existing terms of the contract permit the employer to make the change (for example a specific mobility clause to move elsewhere and work in another office);
• If the terms have been incorporated from a collective agreement they can be varied provided the change takes effect more than a year after the transfer date, however, the varied terms, when considered together, must be no less favourable to the employee than the original terms; and
• In certain insolvency situations. 

As mentioned previously, the usual rules on changing contract terms apply and so changes can only be made as stated in the contractual terms or with the individual’s agreement.

So I have mentioned that changes can be made if there is an ETO reason.  Let’s break this test down.

First, you have to show that there is an economic, technical or organisational reason for the change, examples include:

• a reason relating to the profitability or market performance of the transferee’s business (i.e. an economic reason);
• a reason relating to the nature of the equipment or production processes which the transferee operates (i.e. a technical reason);
• a reason relating to the management or organisational structure of the transferee’s business (i.e. an organisational reason)

Then second, you need to show that this reason entails changes in the workplace. This means that the change will result in a change in the numbers, functions or the employee’s place of work.  

It’s usually pretty easy to satisfy the first part of the test but this second part is a lot more difficult. 

TUPE is extremely fact sensitive so let’s end by having a look at some cases on changing terms and conditions.

These cases were decided under old law but the general principles remain relevant. 

Campbell v Martin McColl Ltd 

Mrs Campbell was a store assistant.  The store was acquired by another company, Martin McColl Ltd.  This involved a TUPE transfer in 2008. 

Martin McColl sought to introduce changes to harmonise the terms of Mrs Campbell’s employment with existing staff. These changes involved removing elements of sick pay and holiday entitlement. 

In 2010, Mrs Campbell and others wrote a letter questioning whether Martin McColl could make these changes and in reply were told that for a number of years staff had operated inconsistently in this regard and that the changes were to meet organisational need and economic circumstance. Store Managers were then asked to issue new contracts.

The tribunal held that this was a void change under TUPE despite the delay in implementing the changes. The principal reason for the variation was to harmonise the entire workforce's terms and conditions which was not permitted. Further, there was no ETO reason because there was no change to the workforce. 

Enterprise Managed Services Ltd v Dance and ors EAT 0200/11 

EMS Ltd held a contract to provide maintenance services to a client. The client raised concerns about maintenance standards and cost and so EMS Ltd introduced a performance-related pay system for staff working on that contract. 

EMS Ltd then won another contract with that client and there was a TUPE transfer whereby EMS Ltd inherited employees.  EMS Ltd applied the same performance related pay system to those employees.  

The Tribunal found that this was harmonisation and that any improvement in productivity was a consequence of that. However, on appeal, the EAT held that EMS Ltd had not tried to harmonise terms out of a simple wish for ease or tidiness across its workforce but had pushed for the changes due to the success of the changes in improving productivity which were demonstrated by the pre-transfer results.  The success was not a consequence of harmonisation, it was the driving force behind the change. The EAT felt that since it is open to an employer to effect productivity changes in accordance with the ordinary law, such changes do not become unlawful simply because there has been a relevant transfer.

Smith and others v Trustees of Brooklands College UKEAT/0128/11

The employees were part-time teaching assistants, but they were being paid full-time rates.  Following a TUPE transfer, the HR Director reduced their rates of pay because he believed that the existing rates were a "mistake" as no one else in the sector had this and it was contrary to guidelines set out by the employees' trade union. The EAT upheld the tribunal's decision that the reason for the change was not because of the transfer. It was not enough that the change would not have happened "but for" the transfer.

That brings us to the end of this podcast. Please do watch out for future podcasts in this series and remember you can get in touch with the employment team at Clarkslegal anytime for any employment advice you may need.