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Changes for an economic, technical or organisational reason
Changes can be agreed for a reason connected with the transfer if they are for an economic, technical or organisational reason entailing changes in the workforce (an ETO Reason). The meaning of the phrase “entailing changes in the workforce” was established in the following well-known case:
Mr Berriman was a quarryman with a guaranteed weekly income. The new employer proposed a change to his pay to bring it into line with the terms of the existing collective agreement. He refused to accept the change (which would have involved a substantial pay cut) and resigned, claiming constructive dismissal. The Court of Appeal upheld Mr Berriman’s claim for unfair dismissal because, although the employer had established an ETO reason, it did not entail changes in the workforce. The reason for the pay cut was to standardise terms and conditions, and not to reduce the workforce. The Court of Appeal held that there is no change to the workforce if the numbers or functions of the workforce do not change.
Delabole Slate Ltd v Berriman [1985] IRLR 305
A change in the workforce requires a change in the numbers or functions of the workforce. One person leaving and someone else taking their job cannot be a change in the workforce, because the numbers and the job stay the same. Even if an employer dismisses all its employees and replaces them with new ones, this cannot be a change to the workforce, because there are the same number of employees doing the same jobs. However, dismissing all the employees and replacing them with franchisees operating through limited companies (who may, or may not, be the same individuals) can be a change in the workforce, as long as the arrangement is not a “sham” (Meter U Limited v Ackroyd UKEAT/0207/11).
Harmonisation — the process of simply changing terms and conditions to bring them into line with those of the buyer’s workforce — is unlawful and this kind of change is void, because it does not “entail changes to the workforce” (London Metropolitan University v Sackur & others EAT/0286/06). This issue was revisited in the following recent case:
3,500 new staff joined a Manchester Further Education College as a result of a TUPE transfer of the Offender Learning Programme. The programme was more expensive than anticipated, leading the employer to call for around 300 redundancies. Negotiation with the UCU meant that enough volunteers came forward to avoid compulsory redundancies.
Having completed the redundancy exercise, the college decided to harmonise terms and conditions across the workforce where 37 different contracts were in use. For the two claimants, the proposed new terms meant unaffordable pay cuts, so they refused to agree. As a result, they were both dismissed and they brought claims for unfair dismissal.
The tribunal found that the reason for the dismissals was the refusal to agree to the pay cuts. This was a reason “connected to” the transfer, because the college’s motive in cutting pay was to harmonise pay scales, bringing them into line with the pay of lower paid staff. The college had an “economic” and an “organisational” reason for the dismissals, namely the desire to harmonise pay. However, the reason for the change was not to entail “changes to the workforce”. There was no change to the claimants’ function (i.e. their role or duties), or their numbers (there was no threat of redundancy by the time the college was seeking to harmonise the pay scales).
One other interesting aspect of this case is that the claimants were awarded re-engagement on their original terms and conditions.
The Manchester College v Hazel [2012] UKEAT/0642/11/RN
Making redundancies or significant changes to duties can amount to an economic or organisational reason entailing changes to the workforce, but only if the change in duties or the threat of redundancy directly affects the person whose contract terms are changed for a TUPE-related reason. For example, in the Manchester College case discussed above, the College tried to persuade the tribunal that the change was connected to “changes in the workforce” by pointing to recent redundancies and other organisational change taking place alongside its attempt to harmonise the claimants’ contract terms. But the EAT said that there was no ETO reason entailing changes to the workforce in this case because by the time the claimants’ contract terms were changed, their roles were no longer at risk of redundancy.
Changes to terms and conditions following a transfer for example, changes to pay may not be in breach of TUPE where the changes are as a result of fundamental changes to the job role and functions of those employees whose terms are being changed. The normal rules governing changes to contract terms still apply (see Chapter 3: Starting work and the employment contract). The following case provides a good illustration:
Nationwide Building Society acquired the Portman Building Society. Two Portman managers resigned because Nationwide expected them to accept very significant changes to the bonus structure that meant a large pay cut.
The tribunal agreed that the more limited product range offered by the Nationwide called for a different skill set, when compared with the more tailored high-value products sold by the Portman, and the Nationwide was allowed to rely on this change in job demands to justify the less generous bonus structure. Downgrading the role and salary of the Portman managers amounted to both constructive dismissal and a deemed dismissal under regulation 4(9) of TUPE because the managers had suffered a substantial detrimental change to their terms and conditions entitling them to resign and be treated as dismissed.
Even so, the dismissals were not automatically unfair because the different product range and revised job requirements gave the Nationwide an organisational (ETO) reason entailing changes to the workforce.
Nationwide Building Society v Benn [2010] UKEAT/0273/09