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Economic, technical or organisational reason entailing changes to the workforce
[ch 12: pages 443-445]Changes to contract terms will be void if the reason for the change is the transfer (regulations 4(4) and 4(5), TUPE, as amended), unless that reason is an economic, technical or organisational reason (an ETO reason) entailing changes to the workforce. Here are some examples:
• An economic reason for changing contract terms could be where the new business lacks demand for a service delivered by the old employer and the new employer wants to cut hours to reflect reduced demand;
• A technical reason could be where the new employer operates a different technical system and needs incoming employees to take on different roles to accommodate this; and
• An organisational reason could be where, due to a merger of two workforces, the new employer needs to eliminate some job roles and introduce others, or make redundancies to reduce headcount.
A reason that would not qualify as a valid economic, technical or organisational reason entailing changes to the workforce would be an employer's desire to bring wages and other terms and conditions into line with those of the transferee's workforce. This is “harmonisation” and is unlawful.
Even if an employer has a valid “ETO reason” for making the change, the change must still be agreed, just like any other change to contract terms.
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.
There must be a change in the overall numbers in the workforce. One person leaving and someone else taking their job is not a change to the workforce.
Significant changes to job roles and duties can provide a valid ETO reason for change, but each case will depend on its own facts. These changes must be more than minor (Miles v Insitu Cleaning Company Limited [2012] UKEAT 0157/12/0210), but need not affect the jobs of the entire workforce. Here is an illustration:
Building society managers at the Portman Building Society had their bonuses cut when the Portman was acquired by Nationwide. Their previous bonus agreement was withdrawn and replaced with the less generous bonus package paid to Nationwide managers.
Nationwide could justify asking the Portman managers to accept the lower bonus package following the merger without breaching TUPE, ruled the EAT, because Nationwide sold a narrower and cheaper range of financial products. This provided a valid economic reason for changing the terms. The role of the manager changed, justifying the lower bonus. Essentially, it was a different job before and after the merger.
Nationwide v Benn [2010] UKEAT/0273/09
For a cut to contract terms to be justified by a valid ETO reason, it must relate to changes to the role of the employee whose contract terms are to be cut. It is not enough that at the time of seeking to impose a change, there is a backdrop of organisational change going on affecting other members of the workforce. 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 workforce. Although the decision to cut their pay was taken against a backdrop of redundancies and reorganisation, the jobs of the two employees were not at risk of redundancy at the time when the college sought to impose the pay cuts. On the contrary, the main reason for the pay cuts was to “harmonise” rates of pay.
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 employer’s desire to harmonise wages downwards to bring them into line with the wages of their existing staff. However, this reason did not “entail changes to the workforce” , so it could not be a valid ETO reason. The fact that other employees’ roles were at risk of redundancy at the time of the imposed pay cuts was irrelevant. There were no “changes to the workforce” capable of justifying the pay cuts in this case.
Manchester College v Hazel [2013] EWCA Civ 281