Changing terms for an economic, technical or organisational reason

Under regulation 4(5)(a) of TUPE, changes to contract terms are permitted where the reason for the change is an economic, technical or organisational reason entailing changes to the workforce, often known as an ETO reason. Even if there is an ETO reason, the change must still be agreed, just like any change. The phrase “changes to the workforce” has been interpreted narrowly. It means changes to the numbers, functions or (since 31 January 2014), workplace (Debole Slate v Berriman [1985] IRLR 305).

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, in Nationwide v Benn [2010] UKEAT/0273/09, the transferee, Nationwide, cut the contractual bonus of new managers joining the bank after a TUPE transfer from the Portman Building Society. The bank’s intention was to bring bonus payments made to transferring managers into line with the less generous bonuses it paid to its existing staff. It could justify this bonus cut by pointing to an organisational reason “entailing changes to the workforce”, namely the fact that the Nationwide sold a more limited, cheaper range of financial products than the Portman, meaning that the duties of the managers after the transfer would be fundamentally different, justifying the negotiation of a lower bonus package.

In Manchester College v Hazel [2013] EWCA Civ 281, the college tried to impose pay cuts on two members of staff who joined them following a TUPE transfer, to bring their pay into line with those of existing employees of the college. The college took this step against a backdrop of general redundancies and reorganisation. However, the roles of the two members of staff were not at risk of redundancy when the college sought to impose the pay cuts. Instead, the main reason for the pay cuts was the college’s desire to harmonise rates of pay downwards, so that the employees joining from the transferor had their pay reduced to match the level paid to the college’s existing staff.

The Court of Appeal held that the attempt to impose the pay cuts was unlawful harmonisation in breach of TUPE. Although there was an economic reason for the changes, that reason did not “entail changes to the workforce”. It made no difference that other employees’ roles were at risk of redundancy at the time that the changes were made. This case confirmed that there can only be a valid ETO reason if the change to the workforce directly affects the individual whose contract terms are changed.