This post was also written by Danny Bloom.
In Enterprise Managed Services Ltd v Dance and Others, a case concerning a TUPE transfer, the Employment Appeal Tribunal (EAT) held that a decision to ‘harmonise’ the incoming employees’ terms with existing employees could have been legitimately made to improve productivity, so that subsequent dismissals based upon the ‘harmonised’ terms may not have been for a reason connected with a transfer, and would therefore not be automatically unfair under TUPE. Although this case should be viewed with caution, it gives transferees some hope that where the reason for post-transfer harmonisation of terms and conditions takes place for a business decision such as to improve productivity, rather than for administrative tidiness, such changes may be lawful.
Regulation 7(1) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) provides that any dismissal of an employee either before or after a relevant transfer will be automatically unfair where the sole or principal reason for the dismissal is either; (i) the transfer itself; or (ii) a reason connected with the transfer, that is not an economic, technical or organisational (‘ETO’) reason. Whether a dismissal is connected with the transfer is a question of fact and will be for the employer to prove that there is no causal link between the two events.
What happened in this case?
Enterprise Managed Services (‘EMS’) provided utility and building maintenance services and another company, Williams, provided building maintenance services to Modern Housing Solutions (‘MHS’). Prior to the expiry of their respective contracts with MHS in March 2009, MHS held a series of meetings with its various contractors (including EMS) highlighting the need for improved performance at a reduced cost. MHS stated that if the existing contractors could not deliver on their requests, the contracts would have to be retendered.
Consequently, EMS reviewed the terms and conditions for the relevant group of its employees and introduced performance-related pay and different hours. These changes were accepted by the engineers. Williams did make any changes in terms for its employees and the MHS contracts were awarded to EMS.
Following the loss of the MHS contracts, employees of Williams were transferred by operation of TUPE to EMS. At this point, EMS had two groups of employees – the existing appliance engineers and the transferred building maintenance engineers (from Williams).
Even before the date of the transfer, EMS recognised that it should review the inherited business, and if necessary, make any changes needed after full consultation with the transferred employees. Following the consultation, some of the employees did not agree to the new terms, so they were dismissed. These employees claimed automatic unfair dismissal on the basis that the sole or principal reason for dismissal was the transfer.
The Employment Tribunal unanimously held that the transfer itself was not the sole reason for the dismissals. However it was divided over whether the dismissals were connected with the transfer and therefore automatically unfair dismissals.
The majority view was that the dismissals were connected with the transfer as the principal reason for the change in terms (which the dismissed employees had refused to accept) was to achieve harmonisation with the existing employees. Whilst the majority accepted the changes made pre-transfer were successful in improving performance, improved performance was a consequence of the harmonisation, but not the principal reason for it.
The minority disagreed and said the dismissals were not transfer related and therefore were not automatically unfair. The principal reason had been, in its view, to achieve increased performance and efficiency in order to maintain EMS’s relationship with MHS. There had been adequate evidence to show that the principal concern of EMS was that a failure to vary the terms and conditions of the employees transferring from Williams would cause a serious risk to EMS’s business relationship with MHS, as performance would not meet the requisite standard. It was therefore a business decision.
On appeal, the EAT said it was clear that even the majority of the Tribunal did not accept that there was a simple wish to harmonise the employees’ terms out of simple tidiness. Harmonisation of the terms of the Williams’ employees post-transfer was driven by the success of the change in terms for the original EMS employees. The majority, arguably incorrectly put the sequence the other way round, that harmonisation came first (i.e. that the business benefit had resulted from the harmonisation). However, the EAT noted that as employers are entitled to take steps to effect productivity changes in accordance with general law, that does not become unlawful where there has been a relevant transfer under TUPE, if the reason for that change is connected to the drive for improved productivity.
The EAT said that in principle they agreed with the minority decision of the Tribunal but that it is a question of fact which must be decided by a three-person Tribunal. The EAT have remitted the case to the Tribunal to be re-heard.
What does this case mean for employers?
Recent decisions by the Employment Tribunals indicate that where there is sufficient evidence to prove that the decision to harmonise the terms is driven by factors such as industry norms or business efficacy, the decision may not be regarded as being for a reason connected with the transfer.
In Smith and others v Trustees of Brooklands College , it was held that the decision to harmonise employees’ terms post-transfer was to reflect standard industry practice, and was not because of the transfer itself, or a reason connected with the transfer. Similarly, in the case of EMS, the EAT disagreed in principle with the Employment Tribunal that the harmonisation of terms was connected with the transfer. The facts of the case appear to demonstrate that harmonisation may be permissible in the specific circumstances that EMS were in, i.e. an outsourcing situation, where the changes directly improved their ability to win contracts in the contract tender process, and where there is evidence to show that the changes were made post-transfer to maintain their competitive business edge. This seems to be a sensible approach by the EAT, particularly in the current economic climate.
Notwithstanding these cases, the decision to harmonise terms of employees transferred under TUPE must still be viewed with great caution. There is a strong line of cases which has established that harmonisation will usually be considered to be either because of the transfer itself, or because of a reason connected with the transfer which is not an ETO reason. If such changes result in dismissal, the employees would be entitled to claim automatically unfair dismissal.