Economic, technical or organisational reason 





In England, Wales and Scotland, changes to individual contract terms are void if their sole or main reason is the transfer, unless that reason is an economic, technical or organisational (ETO) reason entailing changes to the workforce (regulations 4(4) and 4(5), TUPE, as amended). 



In Northern Ireland, the position is slightly different. Here, a change will be void if the reason for the change is either (a) the transfer; or (b) a reason “connected with the transfer” that is not a valid ETO reason. This second broader category could include, for example, contract changes made to prepare for a transfer before a specific transferee has been identified, or changes made to plan for a transfer where the identity of the transferee later changes. The position in Northern Ireland reflects the law as it applied elsewhere in the United Kingdom before 31 January 2014. 



Here are some typical ETO reasons used to justify a change to contract terms after a TUPE transfer:



• economic reason: where the new business lacks demand for a service provided by the old employer;




• technical reason: where the new employer uses a different technical system and incoming employees must change job roles to adjust to it;




• organisational reason: where two workforces come together and job roles are duplicated, so that some roles must be changed or eliminated altogether. 




As explained above, it is not enough for the employer to point to an economic, technical or organisational reason for the change. In addition, the change must "[entail] changes to the workforce". Courts and tribunals have interpreted the phrase “changes to the workforce” narrowly. Only changes to workforce numbers, functions (Debole Slate v Berriman [1985] IRLR 305) and, since 31 January 2014, “location” can provide a valid ETO reason justifying a change to contract terms. (Note that a change to the place of work is not a valid ETO reason in Northern Ireland). 




To provide a valid ETO reason, any change in workforce numbers must involve a change in overall workforce numbers. One person leaving and someone else taking their job is not a change to the workforce.




To provide a valid ETO reason, any change to job functions must be significant, not minor (Nationwide v Benn [2010] UKEAT/0273/09, Miles v Insitu Cleaning Company Limited [2012] UKEAT 0157/12/0210). Splitting up job functions was a significant change, according to the EAT in Osborne v Capita Services Limited [2016] UKEAT/0048/16/RN. In Manchester College v Hazel [2013] EWCA Civ 281, the Court of Appeal suggested that only a change tantamount to a redundancy situation (that is, a change so fundamental that the role effectively becomes a different job) can provide a valid ETO reason capable of justifying a cut to the contract terms for that job due to a transfer. 




In Manchester College v Hazel [2013] EWCA Civ 281, the college tried to rely on a general background of redundancies and organisational change to justify the dismissal of two employees who refused to agree to downward pay harmonisation after a transfer. This argument failed because by the time to college tried to impose the pay cut, the employees’ jobs were no longer at risk of redundancy. There was no valid ETO reason.





Even if an employer has a valid “ETO reason” for changing contract terms, any change must still be agreed, as always.