Mind the gaps on Tupe

The House of Lords must sort out the confusion regarding the transfer of undertakings regulations says Simon Mills. Simon Mills is a barrister at One Essex Court chambers. Last year's decision of the Employment Appeal Tribunal (EAT) in Wilson v St Helens Borough Council created a swell of uneasiness among employment practitioners. The EAT held that a consensual variation of an employee's contract is void where the operative reason for the variation is a transfer of the undertaking.

Not surprisingly, this has led to huge practical difficulties where transferees wish to harmonise terms with their existing workforce.

Subsequently, in Meade and Baxendale v British Fuels, a differently constituted EAT sought to side-step Wilson by holding that a pre-transfer dismissal of the employees was effective in law, albeit potentially unfair, so that the transferee could re-engage the employees on less favourable terms after the transfer.

These decisions have left practitioners in a quandary and desperate for solid guidance on the parameters within which terms can be validly varied without the fear of facing bulk claims for unfair dismissal. The uncertainty will not have been resolved by the recent reversal of the above decisions.

The Court of Appeal focused on the validity of the purported dismissal by the transferor holding that any dismissal solely because of the transfer is ineffective, thereby shutting the Meade bypass. But the Wilson case was disposed of by re-instating the tribunal's finding of fact and failing to comment on the main principle regarding variations. The court thereby failed to give the much-needed guidance on consensual variations in the context of a transfer.

It was common ground in both hearings before the EAT that there had been a transfer of an undertaking for the purposes of the Transfer of Undertakings (Protection of Employment) Regulations 1981 (Tupe) and the European Acquired Rights Directive which Tupe seeks to implement.

In Wilson the EAT seems to have assumed that the dismissal and re-engagement of the employees were nullities. Their contracts of employment had continued by virtue of reg.5(1) and the so-called re-engagement was no more than a consensual variation in the terms of their employment.

The EAT held that such a transfer-related consensual variation by the transferee was invalid under Tupe and the directive as interpreted in Daddy's Dance Hall, being simply a void attempt to contract out of reg.5(1). A different EAT in Meade sought to bypass the effects of Wilson by holding that a dismissal by reason of a transfer is not deemed to be a nullity but one unfair by virtue of reg.8(1). The re-engagement was therefore a fresh agreement and not a variation of the original contract.

The Court of Appeal has concluded that any dismissal effected for an economic, technical or organisational reason entailing a change in the workforce is valid, although potentially unfair. The result is that it is no longer possible to know whether a dismissal is effective until a tribunal decides what caused it.

The passages in Daddy's Dance Hall, relied upon by the EAT, preclude variations to employees' terms where the reason for the change is a transfer falling within the scope of the directive, even where the employee consents. However, this prohibition was expressly stated not to apply where an alteration is permitted by the applicable national law in cases other than transfers of undertakings.

There is, therefore, a permissable “area of freedom” within which a transferee and his employees are entitled to agree to vary the terms of employment provided that the transfer itself is not the reason for the alteration. Practically, however, any change in terms effected soon after a transfer is bound to be transfer-related. An employee can then argue that, but for the transfer, the variation would not have occurred. Currently, the conceptual and evidential difficulties of assessing whether the reason for a change to employees' contracts following a transfer is the transfer itself make it almost impossible to advise clients satisfactorily.

The Wilson and Meade cases are likely to be appealed to the House of Lords. One can only hope that the Lords tell us which dismissals are to be effective in UK law, and that they give us clear guidance on the parameters of the permitted area of freedom within which employers can lawfully impose or agree changes to employees' contracts. We need to know to what extent the consent of the employees affects those parameters, and whether the reasons permitted for the variations are the same or wider than the valid economic, technical or organisation reasons for transfer-related dismissals.

Meanwhile, employers are best advised to do nothing unless they can vary contracts in response to a factor that can be shown not to be the transfer itself.