Could there be a new gap in TUPE protection?

A recent EAT case indicates possible flexibility in TUPE regulations that will assist buyers of businesses. David Sheppard explains

Could there be a new gap in TUPE protection?

What is TUPE?

Essentially, the Transfer of Undertakings Protection of Employment (TUPE) Regulations protect employees who work for a business that’s been transferred. Since 1982, it’s given employees two types of statutory protection based on EU law:

  • any dismissal connected to the business transfer will be automatically unfair;
  • any change to their terms and conditions will be void if the principal reason is the transfer. 

What are the exemptions to this?

TUPE offers an exemption to these protections only if the reason for dismissal or change is also for an ‘economic, technical, or organisational reason, entailing changes in the workforce’ (an ETO reason). 

But, as TUPE’s purpose is to protect transferring employees, the scope of what can be classed as an ETO reason is limited. Any dismissal or change in terms must generally be a consequence of a restructuring or reorganisation of the business – simple headcount reductions, or harmonising terms and conditions with other parts of the business, are not reason enough.

What does this mean for employers?

For employers and buyers of businesses, the restriction on changing terms has been the most frustrating part of TUPE. Someone buying a business will inherit historic pay rates, bonuses, allowances, and working hours – which essentially become gold-plated on transfer. This limits the buyer’s ability to modernise or improve working practices; they effectively have to take on the workforce warts and all. 

Is this changing?

The Employment Appeal Tribunal’s (EAT’s) recent decision in Tabberer v Mears Ltd could set a new precedent. 

On 1 April 2008, several electricians who were originally employed by Birmingham City Council (BCC) moved to Mears. When working for BCC, they were paid an Electricians’ Travel Time Allowance (ETTA) to make up for the lost opportunity of earning a ‘productivity bonus’ while travelling between jobs. When the electricians transferred, Mears stopped these payments. The electricians successfully protested this as a breach of contract, with a court finding that the ETTA was their contractual entitlement. 

In 2012, Mears announced that the ETTA would cease that year. The electricians brought more new proceedings in 2016, claiming that this removal was void under TUPE. On appeal to the EAT this year, the central question was whether the reason for the change – the removal of ETTA – was related to the transfer or not? What caused Mears to make this change?

In its judgment published last month (September), the tribunal EAT found there wasn’t enough of a connection with the transfer to make the variation void under TUPE. The electricians’ working practices had over time changed so much that the original reason for the ETTA had disappeared. They no longer travelled between depots, or received a productivity bonus. In fact, their previous employer had also questioned the payment back in 2006 – but didn’t remove it, as it wanted to avoid a dispute with the electricians’ trade union. As a result, the EAT found that Mears’ removal of the ETTA was because it was outdated and unjustified – it wasn’t for a reason connected to the transfer. 

What does this mean for employers?

This case doesn’t represent a change in interpretation of TUPE, but it does mark a greater willingness to allow new owners to get rid of historic and redundant terms and conditions which are no longer justified. If there’s a business rationale for a change to working practices – and is not for a reason connected to the transfer – then it could be legally valid. 

During pre-transfer due diligence, it’s worth buyers asking about the origins and any ongoing justification for any historic benefits, and whether they’ve been reviewed previously.  If a benefit has lost any clear rationale other than being historic, it may be a target for removal post-transfer.

Will Brexit affect TUPE?

With Brexit fast approaching, after leaving, the Government will be able to amend any EU-derived employment protections. Although it previously indicated that employment law will remain unchanged, TUPE is particularly vulnerable to reform as part of a future agenda to remove business ‘red-tape’ by a post-Brexit government. 

David Sheppard is an employment lawyer at Capital Law