6. Unfair dismissal rights

The general law on unfair dismissal and redundancy applies in situations where a relevant transfer occurs (see the current edition of LRD’s Law at work booklet).

The TUPE Regulations offer some additional protection against unfair dismissal. These are contained in Regulation 7.

Summary of the protection against unfair dismissal under TUPE 2006

Neither the new employer (transferee) nor the old employer (transferor) may fairly dismiss an employee:

• because of the transfer itself; or

• for a reason connected with the transfer, unless that reason is an economic, technical or organisational (ETO) reason entailing “changes to the workforce”.

If there is no ETO reason for the dismissal, the dismissal will be automatically unfair. If there is an ETO reason, and it is the cause or main cause of the dismissal, the dismissal will be fair as long as the employer:

• acted reasonably in treating that reason as sufficient to justify dismissal; and

• met all other requirements of the general law on unfair dismissal.

If the dismissal is because of redundancy, the usual redundancy arrangements will apply, including entitlement to redundancy payments.

The protection against unfair dismissal is available whether employees are dismissed before or after the transfer, and whether the dismissal is carried out by transferor or transferee.

The TUPE Regulations will not prevent an employer dismissing fairly for a reason unconnected with the transfer, for example gross misconduct.

How much service is needed to bring a claim?

Unlike most other classes of automatically unfair dismissals (see the LRD booklet Law at work) employees need at least a year’s service to be able to exercise this right.

Can an employee still claim if s/he does not work in the transferring part of the business?

Yes. An employee does not have to work in the part of the business that transfers in order to be protected from unfair dismissal, as long as the reason for the dismissal is connected with the transfer. It could be, for instance, that an employer decides to make changes to a department after a particular section of it is contracted out.

How long does protection last?

Employees have protection against dismissal for the entire length of their contract, although the more time that passes, the harder it will be to demonstrate a link between the transfer and the dismissal. In the case of Taylor v Connex South Eastern (UKEAT/1243/99), a dismissal two years after the transfer was still related to the transfer and therefore unfair:

The right to resign on grounds of a “substantial change in working conditions” to the employee’s “material detriment”.

Under Regulation 4(9), transferring employees who find that there has been or will be a “substantial” change for the worse in their working conditions as a result of a transfer are entitled to end the contract and claim unfair dismissal. An employee who resigns in reliance on this right without working his or her notice cannot make a claim for pay in lieu of any contractual notice period (Regulation 4(10)).

Employees wishing to rely on this Regulation can choose between resigning before the transfer, on the basis that there “will be” a worsening of their conditions if they transfer, or after the transfer, on the basis that working conditions have worsened.

Note that in contrast to a normal claim for constructive unfair dismissal, Regulation 4(10) does not require the employee to demonstrate a breach of contract. Instead, it is enough to show a “substantial” change for the worst in working conditions. Whether or not there has been a change in working conditions is a simple question of fact. The phrase includes both physical working conditions and contractual terms and conditions.

These issues were considered In Tapere v South London and Maudsley NHS Trust (UKEAT/0410/08), a case in which the EAT had to decide what is meant by “substantial change” to the employee’s “material detriment”. A relocation as a result of a TUPE transfer resulted in Ms Tapere having to work a relatively short distance from her original location. (The case has already been looked at in Chapter 5 — Effect on terms and conditions). Although the distance was not far, nevertheless the change represented a “material detriment” to Ms Tapere, because it disrupted her childcare arrangements and involved her driving on the M25. The EAT confirmed that the correct approach here is to consider the impact of any change from the employee’s viewpoint. The question to ask is: did this employee regard the changes as detrimental, and was this a reasonable position for this employee to take? This pragmatic response will be helpful to employees with caring responsibilities, and recognises that each employee’s personal circumstances are different. The “reasonableness” test in turn protects the employer against frivolous claims.

Claims for constructive dismissal

The rule in Regulation 4(9) does not remove an employee’s right to bring a normal claim for constructive dismissal in response to a breach of contract in the usual way. (For more on constructive dismissal see LRD’s booklet Contracts of employment).

Claims for wrongful dismissal

The rule in Regulation 4(9) does not remove an employee’s right to bring a wrongful dismissal claim if there is a breach of contract. A wrongful dismissal claim will rarely be appropriate. However, it may be appropriate, for example, for a high earning employee with a very generous entitlement to contractual notice.

In any event, any decision to resign should only ever be the very last resort, after taking advice and considering all other available options.

Dismissal for an economic, technical or organisational reason

A dismissal will not be automatically unfair if it is related to the transfer but is for an economic, technical or organisational (ETO) reason, entailing changes in the workforce. If the employer can establish this, then that will be a potentially fair reason for dismissal.

Even if the employer can establish an ETO reason, he must still go on to show that dismissal was reasonable in all the circumstances, as for any ordinary unfair dismissal claim.

The ETO reason must be one that entails “changes in the workforce”. Readers should refer back to the discussion of the most important case law on the meaning of this wording in Chapter 5 — Changes to terms and conditions.

In London Metropolitan University v Sackur (UKEAT/0286/06/ZT), the EAT held that it is automatically unfair to dismiss and re-engage a group of employees on harmonised terms and conditions following a TUPE transfer. The decision to harmonise terms and conditions following a TUPE transfer cannot be a valid ETO reason to justify dismissals.

Changes in the workforce

There will be no change in the workforce if one person leaves and someone else takes his or her job. Even if an employer dismisses all its employees and replaces them with new employees, this will not be a change to the workforce, because there would still be the same number of employees doing the same jobs. If, however, the employer proposes to make redundancies, engages in a re-organisation which involves creating genuinely new jobs, or proposes to redeploy staff into different jobs, this could amount to an ETO reason entailing a change in the workforce. If the ETO reason is redundancy, the employee is entitled to a redundancy payment.

Can a transferee rely on the transferor’s ETO reason?

An important case, Hynd v Armstrong (Court of Sessions) ([2007] CSIH 16) has decided that the transferor in a TUPE transfer is not allowed to rely on the transferee’s ETO reason in order to defend an action for automatically unfair dismissal.

This case is significant and helpful to employees, because it makes it much harder for businesses that dismiss staff in anticipation of a business sale (whether or not under pressure from the buyer) to rely on the ETO defence to justify their actions.

The issue arose in the classic way: The business of one solicitors’ firm (A) was transferred to another firm (B). Firm B did not need the claimant’s services as a corporate lawyer, so he was dismissed by his employer, Firm A, the day before the transfer. When he claimed unfair dismissal, Firm A argued that the dismissal was for an ETO reason, because Firm B had no need of his services for economic and organisational reasons. The Court of Sessions found against the employer, concluding that an ETO defence is only available when an employer relies on his own reason for dismissal. It cannot apply where, as here, an employer dismisses for reasons unrelated to its own business.

This case has real practical significance, because it means that on a sale of a business where the transferee has no business need for the transferor’s staff, employees of the transferor should always transfer automatically over to the transferee. They should not be dismissed by the transferor. Any redundancies should then be carried out by the new employer out of a pool made up of the combined workforce.

Where collective consultation obligations under TULRCA 1992 are triggered by these planned redundancies, statutory redundancy consultation cannot begin until after the transfer date, because until the transferring employees have joined the new employer’s workforce, the new employer is not entitled to engage in statutory consultation with them over possible redundancies (because until the transfer has taken place, they will not be employees of the transferee).

Some illustrations of ETO reasons for dismissal could include:

• Economic reasons: where the transferee business does not have sufficient demand for a product line produced by the transferor;

• Technical reasons: where the transferee business needs to use new technology for which transferring employees lack skills;

• Organisational reasons: where the amalgamation of the two businesses has resulted in a need for fewer employees as a result of duplication of functions, or where the transferee operates at a different location and relocating incoming staff is not feasible.

Who should any claim be brought against?

A claim for unfair dismissal is normally brought against the transferee (the new employer), even if the employee does not transfer. This is because liability for the dismissal will transfer to the new employer.

However, if the employee was dismissed for an ETO reason or a reason unconnected with the transfer before the transfer, then the claim may need to be brought against the transferor. If there is any doubt about who the employer is, or whether the employment transferred, it is always best to claim against both employers and the issue will be resolved at an early stage of the tribunal proceedings. This is a very complicated issue and advice should always be taken before issuing any claim.

What is the time limit for claims of unfair dismissal connected with TUPE?

As with a standard claim for unfair dismissal, any claim must be brought within three months of the date of dismissal. The tribunal has a discretion to extend the time in which to bring any claim, but extensions of time are very rare.