Keith Pugh looks at a ground breaking TUPE ruling. Keith Pugh is head of employment law at Nabarro Nathanson

The long awaited decision of the House of Lords in the cases of British Fuels v Baxendale & Meade and Wilson v St Helens Borough Council was made last month. It concerns the Transfer of Undertakings (Protection of Employment) Regulations, 1981 and is relevant to all who buy, sell or otherwise transfer a business.

There were two fundamental issues. The first was whether a transfer of an undertaking is a nullity – such that the employment contract continues without change, notwithstanding a purported dismissal and subsequent re-hiring on new (and less favourable) conditions. The second issue was whether there can be, because of a transfer of undertaking, an agreement of less favourable conditions made by the employer and the employee (whether that agreement be express or implied by conduct).

On the first issue the Lords found that dismissals by reason of a transfer of an undertaking do validly terminate the contract of employment and are not a nullity. An employee can therefore make a claim for unfair dismissal, but is also free to agree to accept a new (and less favourable) contract with the transferee.

Accordingly, the House of Lords did not have to deal with the second issue. Had it been necessary to consider the second issue fully, the House of Lords would have referred the matter to the European Court of Justice (ECJ).

Where does this leave employers and employees? Employers who seek to impose new and less favour-able terms and conditions can now do so, albeit at a price.

The employee's remedy is to claim unfair dismissal. In practical terms this could be expensive for the emp-loyer, particularly as the Government is likely to raise the cap for unfair dismissal awards to #50,000.

In practice, employers and employees need to know whether, and to what extent, they can agree variations to the contract of employment in the context of a transfer situation. This question will not be answered with any certainty until referred to the ECJ. It is to be anticipated that such a reference will be made by an employment tribunal or the EAT in the very near future.