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Changing terms for an economic, technical or organisational reason
[ch 12: pages 401-403]For all transfers on or after 31 January 2014, changes to contract terms are void if the reason for the change is the transfer (regulation 4(4)(5), TUPE), unless that reason is an economic technical or organisational reason (an ETO reason) entailing changes to the workforce.
Examples of ETO reasons:
An economic reason for changing contract terms could be where the new business does not have sufficient demand for the product and the new employer wants to cut hours to reflect reduced demand;
A technical reason for changing contract terms could be where the new employer operates a different technical system and needs incoming employees to change their work functions;
An organisational reason for changing contract terms could be where, due to a merger of two workforces, the new employer needs to eliminate some functions and introduce new functions.
Even if the employer can point to an ETO reason justifying the change, the change must still be agreed — just like any other change to contract terms.
The phrase “changes to the workforce” has been interpreted narrowly to mean changes to the numbers or functions of the workforce (Debole Slate v Berriman [1985] IRLR 305). For all transfers on or after 31 January 2014, a change in workforce location can be a valid ETO reason justifying a change to contract terms.
One person leaving and someone else taking their job is not a change to the workforce. Significant changes to job roles and duties can be a valid ETO reason for change. For example:
Building society managers had their bonus cut when they moved from The Portman to the Nationwide. The new employer was able to justify the cut as being for a valid ETO reason entailing changes to the workforce, because the Nationwide sold a narrower and cheaper range of financial products. This was a valid economic reason for changing the terms. The managers‘ work functions changed, justifying the lower bonus.
Nationwide v Benn [2010] UKEAT/0273/09
In practice it has become increasingly easy for employers to establish an ETO reason to justify cuts to terms and conditions after a transfer. For example:
• in Smith v Trustees of Brooklands College [2011] UKEAT/00128/11, the incoming employer was able to justify a cut in the wages of part-time staff on the basis that their HR manager (incorrectly) believed that they had been getting paid too much by their previous employer as a result of a mistake;
• in Enterprise Management Services Limited v Dance [2011] UKEAT 0200/11/2109, a desire to reorganise functions to improve efficiency and performance was accepted as a valid ETO reason justifying change.
However, there can only be a valid ETO reason where the change in functions, numbers or location directly affects the employee whose terms are being changed. For example:
Manchester College tried to impose pay cuts on two members of staff whose employment had transferred from another employer, to bring their pay into line with those of their existing employees. Although the decision to cut their pay was taken against a backdrop of general redundancies and reorganisation, the jobs of the two employees in question were not at risk of redundancy at the time the college sought to impose the pay cuts. On the contrary, the main reason for the pay cuts was the college’s desire to harmonise rates of pay downwards.
The Court of Appeal ruled that the attempt to impose the pay cuts was unlawful harmonisation in breach of TUPE. There was an economic reason for the changes, namely the desire to “harmonise” wages downwards to bring them into line with the wages of existing staff. However, this reason did not “entail changes to the workforce” so it could not be a valid ETO reason. It made no difference that other employees’ roles were at risk of redundancy at the time that the changes were made.
Manchester College v Hazel [2013] EWCA Civ 281