TUPE and cross-border transfers explained

How does TUPE apply in an offshoring situation? Alison Clements reports in light of a recent EAT ruling

In Xerox Business Services Philippines Inc Ltd v Zeb, the Employment Appeal Tribunal (EAT) provided some clarity around whether a transferring employee is entitled to protection of his salary terms if he relocates to an offshore workplace.

Mr Zeb was employed by Xerox in a finance team. His contractual place of work was ‘Leeds or Wakefield’. In 2014, the finance service was offshored from Xerox UK to Xerox Philippines. Xerox believed TUPE would transfer the employees’ employment, and their workplace would remain Wakefield. Because Xerox Philippines had no requirement for Wakefield-based finance employees, it considered that employees who transferred would be redundant.

Xerox UK gave the employees the choice of objecting to the transfer and being made redundant by Xerox UK with an enhanced package, or TUPE-transferring and being made redundant by Xerox Philippines with a statutory package. A further option was to relocate to Manila on local Philippines terms and conditions, which were considerably less generous. 

Zeb believed that TUPE entitled him to relocate to Manila while remaining employed on his UK terms. Xerox disagreed, asserting that any TUPE transfer was on the UK terms in their entirety, including the location clause stating Wakefield. Zeb did not object to the transfer and so Xerox Philippines made Zeb redundant after the transfer, paying him his statutory entitlements only.

At first instance, the employment tribunal held that Zeb had agreed to vary his workplace to Manila, and so had been entitled to transfer there with his TUPE-protected terms and conditions, including salary.

EAT’s ruling

The EAT upheld Xerox’s appeal. TUPE’s effect is to preserve an employee’s rights after transfer, including rights about pay and work location. Xerox Philippines was required by TUPE to employ Zeb at Wakefield and pay his salary. However, it was not required to employ him in Manila at the same salary.

TUPE permits variation of contacts, if agreed by both employee and employer. Xerox had proposed relocation on local terms, whereas Zeb had only been prepared to make the move if he retained his UK terms. There was never a meeting of the minds and so there was no agreement to vary the contract. TUPE did not entitle Zeb to unilaterally vary the contractual workplace while protecting his salary.

The EAT commented that if the tribunal had applied the statutory test for redundancy, it would have concluded that the reason for dismissal was that Xerox Philippines’ requirements for employees to carry out finance accounting work in Wakefield had ceased or diminished. The tribunal should then have considered whether the principal reason for dismissal was the TUPE transfer or redundancy, and whether it had been fair. The EAT felt the respondent had a strong ETO defence, but remitted the case back to the tribunal.

Consistent decision

The EAT’s decision is consistent with the approach favoured by most commentators. TUPE cross-border issues have become more acute in recent times, with businesses increasingly offshoring services to lower-cost jurisdictions. This type of issue is less likely to arise on a business sale, because business undertakings are usually geographically static.

A new overseas service provider may not recognise TUPE’s applicability; it does not usually want or need the employees concerned and it will almost certainly be uncommercial to maintain their terms. The offer made by the transferee in this case was an offer of alternative employment in Manila but on a reduced salary. The employee was entitled to reject this and be made redundant, but not to demand to transfer on his existing terms. 

Offshoring may still create the unenviable scenario that neither the transferor nor the transferee is prepared to be responsible for making the redundancies resulting from a cross-border transfer. Employees may find themselves in a situation where the new provider denies responsibility, refusing to pay them notice or redundancy pay, and they have to try to enforce judgement against an overseas employer. In practice, a commercial solution is usually found – the transferor often takes responsibility, with cost and risk-sharing being contractually agreed behind the scenes. 

Alison Clements is a managing associate at Lewis Silkin