UNFAIR DISMISSAL AND THE TRANSFER OF
UNDERTAKINGS (PROTECTION OF EMPLOYMENT)
REGULATIONS 2006
NOTES PREPARED BY
THOMAS LINDEN QC, MATRIX CHAMBERS
FOR MATRIX TUPE CONFERENCE ON 15TH MARCH 2012
INTRODUCTION
1. This paper looks at the operation of the law of unfair dismissal in the context of a
relevant transfer. The discussion will be based on the Transfer of Undertakings
(Protection of Employment) Regulations 2006 (“TUPE”), but the position under
the old 1981 Regulations will be addressed where relevant and, in particular,
where it differed from the current position.
The Underlying Principle
2. An understanding of the principle which underpins the Acquired Rights Directive
("ARD"), which TUPE purports to implement, is helpful in seeking to chart a way
through the thicket of case law which has arisen in relation to the application of
TUPE. This principle is that the rights of employees under national law are to be
safeguarded in the event of a transfer of an undertaking or part of an undertaking
in which they are employed:
2.1. Emphasis is placed on the fact that existing rights under national law are
safeguarded in order to highlight the point that the ARD does not prevent
change in the workplace. Under UK employment protection legislation the
employee has a certain degree of protection against change, but the law
does not prevent the employer from introducing change altogether.
position is the same under the ARD/TUPE.
1
The
2.2. The fact that rights are safeguarded in the event of a relevant transfer is
emphasised because the ARD requires no more than this. The position of
the employee in law, as opposed to fact, must be the same as it would have
been had no transfer taken place, but by the same token the employee
should not gain greater rights than s/he would otherwise have had1.
3. These points are encapsulated in the following passages from the speech of Lord
Slynn in Wilson and others v St. Helens Borough Council2:
"In my opinion, the overriding emphasis in the European Court’s judgments is
that the existing rights of employees are to be safeguarded if there is a
transfer. That means no more and no less than that the employee can look to
the transferee to perform those obligations which the employee could have
enforced against the transferor. The employer, be he transferor or transferee,
cannot use the transfer as a justification for dismissal, but if he does dismiss it
is a question for national law as to what those rights are."
4. At paragraph 71 of his speech, Lord Slynn said this:
"The object and purpose of the Directive is to ensure in all Member States
that on a transfer an employee has against the transferee the rights and
remedies which he would have had against the original employer. To that
extent it reduces the differences which may exist in the event of a change of
employers as to the enforcement by employees of existing rights. They must
all provide for enforcement against the transferee of rights existing against the
transferor at the time of transfer. It seems to me that the Court has clearly
recognised that the precise rights to be transferred depend on national law.
But neither the Regulations nor the Directive nor the jurisprudence of the
court create a Community law right to continue employment which does not
exist under national law".
5. Lord Slynn’s remarks were based on, amongst other things, paragraph 17 of the
ECJ's judgment in the Daddy's Dance Hall
3
case which, itself, was based on the
judgment of the Court in the Mikkelsen4 case and was endorsed in the Rask5 and
the Ny Molle Kro6 cases:
1 By way of example, see the approach in Jackson v Computershare Investor Services Plc
[2008] IRLR 70
2[1998]
ICR 1141 HL
3[1988] ECR 739
4[1985] ECR 2639
5
6
[1992] ECR 1-5755
[1989] ICR 330 ECJ
2
"The Directive is intended to achieve only partial harmonisation, essentially
by extending the protection guaranteed to workers independently by the laws
of the individual Member States to cover the case where an undertaking is
transferred. It is not intended to establish a uniform level of protection
throughout the Community on the basis of common criteria. Thus, the
Directive can be relied on only to ensure that the employee is protected in his
relations with the transferee to the same extent as he was in his relations with
the transferor under the legal rules of the Member State concerned".
(emphasis added)
6. As will be seen below, although this principle has determined the outcome of
various arguments which have been put before UK courts, in some cases it
appears that it has not been applied. Arguably, nor has Parliament in enacting
certain aspects of the 2006 Regulations.
Implementing the underlying principle: the 3 Key Rules
The First Rule: contracts of employment automatically preserved
7. The underlying principle is enacted in the form of three rules. Article 3.1 of the
ARD and reg. 4 provide that contracts of employment existing at the time of the
transfer are not terminated by the transfer. Rather, they are enforceable as if
originally made between the employee and the transferee.
The Second Rule: no dismissal on grounds of the transfer
8. The second rule is enacted by Article 4.1 ARD and reg. 7. This is that the
contracts of employment of protected employees shall not be terminated by
reason of a relevant transfer. In other words, the first and second rules are two
sides of the same coin.
Existing contracts of employment are automatically
preserved in the event of a relevant transfer, and this rule cannot be defeated by
the expedient of terminating them if the reason for doing so is the transfer itself.
The Third Rule: no waiver of TUPE rights
9. The third rule has developed through the case law and seeks to underpin the first
and second rules. This is that employees may not waive their rights under the
ARD/TUPE although, of course, they are entitled to object to transfer. This rule is
discussed in Daddy's Dance Hall and was considered by the Court of Appeal
(“CA”) in Power v Regent Security Services 7. Its object is to prevent employers
from prevailing on employees to forego their right to automatic preservation of
7 [2008] ICR 442 CA
3
their contracts of employment in the event of a relevant transfer although the
statutory statement of this rule under regs 4(4) and (5) of TUPE is wider in scope
than this. This topic is covered by James Laddie QC.
UNFAIR DISMISSAL
The Relevant Legislative Provisions
10. The first sentence of Article 4.1 ARD provides as follows:
"The transfer of an undertaking, business or part of a business shall not in
itself constitute grounds for dismissal by the transferor or the transferee."
11. As will be seen below, however, the protection under reg 7 may be wider. Reg.
7(1) provides, so far as material, as follows:"Where, either before or after a relevant transfer, any employee of the
transferor or transferee is dismissed, that employee shall be treated for the
purposes of Part X of the 1996 Act ... as unfairly dismissed if the sole or
principal reason for dismissal is –
(a) the transfer itself; or
(b) a reason connected with the transfer that is not an economic, technical or
organisational reason entailing changes in the workforce." (emphasis
added)
12. The words “or a reason connected with it” mean that reg 7(1) may be engaged
not only where the ground for dismissal is the transfer itself, but also when it is
merely connected to the transfer. To this extent the domestic law protection
against transfer related dismissals may be wider than strictly required by Article
4.18.
13. Importantly, however, the second sentence of Article 4.1 also provides that the
rule against dismissal on the grounds of a relevant transfer:
8 Note that Elias P in Power v Regent Security Services Ltd [2007] IRLR 226 at para 58
suggests, obiter, that domestic provisions which are wider than is required to implement a
directive are invalid. However, see, now the growing body of case law which suggests that
this is not the case and the discussion of this issue in Alemo Herron & Others v Parkwood
Leisure [2011] ICR 920 UKSC (currently before the ECJ).
4
"shall not stand in the way of dismissals that may take place for economic,
technical or organisational reasons entailing changes in the workforce."
14. Similarly, regs. 7(2) and (3) provide, so far as material, that:
"(2) This paragraph applies where the sole or principal reason for the
dismissal is a reason connected with the transfer that is an economic,
technical or organisational reason entailing changes in the workforce of either
the transferor or the transferee before or after a relevant transfer.
(3) Where paragraph (2) applies (a)
paragraph (1) above shall not apply;
(b)
without prejudice to the application of s.98(4) of the 1996 Act
(test of fair dismissal), the dismissal shall for the purposes of
s.98(1) and 135 of that Act (reason for dismissal), be regarded
as having been for redundancy where section 98(2)(c) of that
Act applies, or otherwise for a substantial reason of a kind
such as to justify the dismissal of an employee holding the
position which that employee held."
15. The purpose of the ARD, which is intended to be reflected in reg. 7, is therefore
arguably to prevent dismissal on the grounds of a relevant transfer but to permit
dismissals on other grounds. The question which an Employment Tribunal (“ET”)
arguably ought to be required to determine is whether the reason for dismissal
was the transfer itself, in which case reg. 7(1) applies, or whether it was some
other substantial reason, in which case reg. 7(2) applies. What ought to follow
from this is that the concept of "an economic, technical or organisational reason
entailing changes in the workforce" ("an ETO reason") ought not to be given an
overly technical meaning.
Under Article 4.1, at least, the statement that the
reason for dismissal was an ETO reason is merely a way of saying that the
reason was not the transfer itself. However, as will be seen below, because of the
difference between the scope of Article 4.1 and the terms of old reg 8/new reg
7(1), this has not always been recognised by the courts.
The Relationship between Regulation 7 and Part X, Employment Rights Act
1996
16. TUPE does not provide the machinery for the enforcement of the underlying
principle. The employee who wishes to complain that his or her contract of
employment has not been preserved must do so in either the ET or the courts,
through either the common law or existing employment protection legislation or
both.
Similarly, the employee who wishes to complain of dismissal on the
5
grounds of a relevant transfer must bring his or her claim under Part X,
Employment Rights Act 1996 i.e. existing unfair dismissal legislation.
17. Thus, reg. 7(1) merely creates an additional category of potentially automatic
unfair dismissal under Part X of the 1996 Act.
17.1.
If the reason for dismissal is misconduct or incompetence or
redundancy etc, ie unconnected with the transfer, it may fall within s.98(2)(a)(d) and reg 7 will normally have no application.
17.2.
If the reason for dismissal is connected with the transfer, it is
automatically unfair unless it is for an ETO reason and therefore falls within
reg 7(2). If it is for an ETO reason, it is not automatically unfair and the
employer’s reason for dismissal is treated as redundancy for the purposes of
s98(2)(c) or "some other substantial reason" for the purposes of s.98(1)(b).
It is then for the ET to determine whether the dismissal was fair for the
purposes of s.98(4) of the 1996 Act.9
17.3.
If the reason for the dismissal is the transfer itself, the dismissal is
automatically unfair.
18. All of this is, of course, consistent with the principle that the ARD/TUPE merely
preserve existing rights under national law.
Who has the right not to be unfairly dismissed in the context of a relevant
transfer?
19. It is important to note that reg. 7 potentially applies to any dismissal in the context
of a relevant transfer.
It does not matter whether the dismissal is by the
transferor or the transferee, whether it takes place before or after the transfer and
whether the employee was or was not employed in the undertaking or part
transferred or to be transferred. If the ground for dismissal was the transfer itself
etc, the dismissal is automatically unfair. This is made explicit in reg 7(4).
20. Consistently with the underlying principle, anyone who has the right not to be
unfairly dismissed under national law is also protected from unfair dismissal in the
9See
Marsh v MRS Environmental Services [1997] ICR 995 CA
6
context of a relevant transfer. Subject to one point, individuals who do not have
this right under national law do not acquire it by virtue of a relevant transfer.
21. Thus, only “employees” have the right not to be unfairly dismissed by reason of a
relevant transfer. In the Mikkelsen10 case the ECJ held that:
"The term "employee" within the meaning of [the ARD] must be interpreted as
covering any person who, in the Member State concerned, is protected as an
employee under national employment law. It is for the national court to
establish whether that is the case in this instance."
22. However, new reg. 2(1) of TUPE provides that:
"”Employee" means any individual who works for another person whether
under a contract of service or apprenticeship or otherwise but does not
include anyone who provides services under a contract for services and
references to a person's employer shall be construed accordingly."
23. Obviously, this contemplates a wider category of individual than the definition of
“employee” under s.230, Employment Rights Act 1996. Indeed, the definition
under reg. 2(1) is closer to the definition of "worker" under s.230(3)(b).
An
interesting question therefore arises as to whether reg. 2(1) overrides s.230 and
confers a right not to be unfairly dismissed by reason of a relevant transfer on
"workers", or whether an ET ought to decline jurisdiction in a case in which a
worker brings a complaint of unfair dismissal contrary to reg 7(1) on the grounds
that there is no such jurisdiction under Part X. Probably, the answer is that reg
2(1) identifies the category of employees who are entitled to transfer but the
question of their rights on transfer then falls to be determined under national law
ie they need to qualify under the 1996 Act as well if they are to bring an unfair
dismissal claim.
24. The qualifications and exclusions which apply to unfair dismissal claims under
Part X of the 1996 Act (eg in relation to continuity of employment etc) also apply
to such claims in the context of a relevant transfer. Reg. 7(6) provides that reg.
7(1):
"Shall not apply in relation to a dismissal of an employee if the application of
s.94 of the 1996 Act to the dismissal of the employee is excluded by or under
10[1985]
ECR 2639 ECJ
7
any provision of the 1996 Act, the 1996 [Employment] Tribunals Act or the
[Trades Union and Labour Relations (Consolidation) Act] 1992; ..."
What constitutes a dismissal?
Generally
25. In the light of the points made above, it is suggested that the answer to this
question ought to be that the concept of dismissal has the same meaning in the
context of a relevant transfer as it has under national law i.e. under Part X,
Employment Rights Act 1996 and, in particular, s.95. On this basis:
25.1.
There will be a dismissal if an employer terminates an employee's
contract of employment, even if this is accompanied by an offer of
employment on different terms and conditions, and the employee accepts.
The concept of dismissal merely requires termination of a contract;
termination of the employment relationship need not be established.11 This
is uncontroversial.
25.2.
Similarly, it is uncontroversial that the expiry and non-renewal of a
fixed term contract will be a dismissal in the context of a relevant transfer just
as it would be in any other context.
Constructive Dismissal: Does there have to be a breach of contract?
26. What is controversial, however, is the concept of a constructive dismissal in the
context of a relevant transfer. There is no doubt that employees are protected
against constructive dismissal to the same extent as they would be in any other
context, but the question is whether they enjoy greater protection in this context.
The old reg. 5(5) provided that the automatic transfer principle under old reg.
5(1), and the right to object to transfer under reg. 5(4A), were:
"Without prejudice to any right of an employee arising apart from these
Regulations to terminate his contract of employment without notice if a
substantial change is made in his working conditions to his detriment; but no
such right shall arise by reason only that, under that paragraph, the identity of
his employer changes unless the employee shows that, in all the
circumstances, the change is a significant change and is to his detriment."
(emphasis added)
11See
Hogg v Dover College [1990] ICR 37 EAT
8
27. The question under the 1981 Regulations was whether this provision merely
preserved the employee's protection against constructive dismissal under
national law, in which case the employee had to prove repudiatory breach of
contract on the part of the employer which s/he accepted, or whether old reg. 5(5)
acknowledged a wider concept of constructive dismissal in the context of a
relevant transfer which merely required the employee to establish a substantial
change in his working conditions and/or that the change in the identity of his
employer was significant and to his detriment.
28. In Merckx12 the ECJ dealt with a case in which there was to be a transfer of a
Ford car dealership. The position of the transferee of the undertaking was that it
was prepared to apply existing terms and conditions of employment. However,
the transferee was not able to guarantee that the client base of the dealership
would be retained or that previous sales figures would be achieved. This, in turn,
was likely to have an impact on the job security and remuneration of the
employees. One of the preliminary questions which the ECJ was asked to decide
was whether the automatic transfer principle precluded employees from objecting
to being transferred to the transferee and in answering this question the ECJ
qualified what it had said in the Katsikas case13.
Not only were employees
entitled to object; if the reason for their objection was a substantial change in their
working conditions which was to their detriment, the law of the Member State
should provide that this was to be treated as dismissal for the purposes of
national law.
29. Since there was apparently no breach or anticipatory breach of contract in the
Merckx case, it was read by some as creating a Community law concept of
constructive dismissal in the context of relevant transfers. Indeed, this is the view
which was taken by the EAT in Rossiter v Pendragon plc14.
30. In view of the underlying principle, however, the correctness or otherwise of the
Rossiter decision was open to debate. If it is the case that the ARD/TUPE merely
preserve existing rights under national law, it is difficult to see how there can be a
12[1997]
ICR 352 ECJ
13[1993]
IRLR 179 ECJ
14[2001]
ICR 1265 EAT
9
Community law concept of constructive dismissal. In Merckx the ECJ was not
asked to consider whether there was such a concept, nor whether it entitled
Member States to provide that a repudiatory breach of contract was required.
Moreover, the idea of a Community law concept of constructive dismissal would
appear to be contrary to the passage from Daddy’s Dance Hall cited at paragraph
5, above. The Rossiter case was therefore appealed, and the CA held15 that,
consistently with the underlying principle, it was necessary to establish a
repudiatory breach of contract in order to establish constructive dismissal. Other
common law principles, such as affirmation, also applied.
31. It appears, however, that the decision of the EAT in Rossiter v Pendragon has
been restored by regs 4(9)-(11) of TUPE. These provide as follows:“(9) Subject to Regulation 9, where a relevant transfer involves or would
involve a substantial change in working conditions to the material detriment of
a person whose contract of employment is or would be transferred under
paragraph (1), such an employee may treat the contract of employment as
having been terminated, and the employee shall be treated for any purpose
as having been dismissed by the employer. (emphasis added)
(10) No damages shall be payable by an employer as a result of a dismissal
falling within paragraph (9) in respect of any failure by the employer to pay
wages in respect of a notice period which the employee has failed to work.
(11) Paragraphs (1), (7), (8), and (9) are without prejudice to any right of an
employee arising apart from these Regulations to terminate his contract of
employment without notice in acceptance of a repudiatory breach of contract
by the employer”.
32. The intention behind these provisions is not entirely clear. However, paragraph
46 of the DTI Public Consultation Document of March 2005 stated that they are
“designed to make it clearer than in the existing Regulations that the UK has fully
implemented Article 4.2 of the Directive”. This provides that:
“If the contract of employment or the employment relationship is terminated
because the transfer involves a substantial change in working conditions to
the detriment of the employee, the employer shall be regarded as having
been responsible for termination of the contract of employment or of the
employment relationship”. (emphasis added)
15[2002]
ICR 1063 CA
10
33. It appears that the Government’s understanding of this provision was that,
contrary to the decision of the CA in Rossiter v. Pendragon, the concept of
constructive dismissal has a Community law meaning and does not require a
repudiatory breach of contract on the part of the employer. Somewhat obscurely,
the DTI Document then said that there would be no right to claim damages for
wrongful dismissal:
“as it would not, in the Government’s view, be right for an employer to be
penalised for failing to give notice of termination in a situation where the
employment contract was treated as having been terminated in the
circumstances described in this provision.”
34. The position therefore appears to be that if a relevant transfer results in a
substantial change in working conditions to the detriment of a given employee
and the contract of employment comes to an end as a result, the employee is to
be treated as constructively dismissed, regardless of whether the change in
working conditions amounted to a breach of contract. However, the dismissal
does not entitle the employee to damages for wrongful dismissal – this remedy
would only be available if there was a repudiatory breach which was accepted by
the employee. It does, however, entitle the employee to bring statutory claims
arising out of his or her dismissal.
35. As to what constitutes a “substantial change in working conditions to the material
detriment of a person”, in Tapere v South London and Maudsley NHS Trust16 the
Claimant’s contract of employment case permitted the transferor primary care
Trust to require her to work “either temporarily or permanently at other locations
within the trust". The result of the transfer was that the employee’s place of work
would change from Burgess park in Camberwell to Beckenham. The EAT held
that the words "within the trust" in the mobility clause defined the geographical
area within which the Claimant could be required to work and, construed as at the
time the contract was entered into17, this restricted any relocation to the
geographical boundaries of her then employer, the transferor. Increasing the
scope of the area would alter the terms of her contract to her disadvantage and,
accordingly, the Claimant could not be required to move to the new work place
16 [2009] ICR 1563 CA
17 Compare the approach in relation to the enforcement of restrictive covenants post transfer
in Morris Angel & Son Ltd v Hollande [1993] ICR 71 CA
11
and the transferee trust was in fundamental breach of contract in requiring her to
do so.
36. The EAT also considered the position under reg 4(9) and held that in assessing
what is substantial the ET should have regard to the character or nature of the
change. The change in the employee’s place of work was therefore “substantial”
even if, in practice, it would not significantly add to the length or time of her
journey to work. Such a change would be material and to the detriment of the
employee if, applying the analogy with discrimination law, a reasonable employee
could regard it such: “what has to be considered it the impact of the change from
the employee’s point of view”. This test was therefore satisfied even if, as the ET
had found, it was unlikely that the move would in fact impact detrimentally on the
employee. It followed that the Claimant succeeded in her constructive dismissal
claim under Regulation 4(9). This approach is open to question but the case was
not appealed, presumably given that Ms Tapere also succeeded in showing a
fundamental breach of contract and therefore a conventional constructive
dismissal.
37. Tapere has recently been followed by the EAT in Abellio London Limited v (1)
Musse & Others and (2) Centrewest London Buses Ltd18 where, again, the
Claimants were victorious. This decision also concerned a mobility clause in a
case where bus drivers had been required to transfer their bases from
Westbourne Park Depot to Battersea Depot. On the facts, the Claimants’
complaint was significantly stronger than in Tapere given that, for four of the
drivers, the change would extend their working day by 2 hours or more because
of longer journeys to work. The EAT also held that in determining what was to be
regarded as a “substantial” change regard could be had to the terms of the
mobility clause, but the contract was not decisive. In any event, the mobility
clause indicated that regard was to be had to the views of the employee and, for
reasons similar to those which applied in the Tapere case, did not permit the
enforced relocation. Whether the change was substantial was a question of fact
for the ET. “Detriment” should be interpreted as the opposite of advantage and
the threshold for materiality was low:
18 UKEAT/0283/11/CEA
12
“It is therefore the employee’s perspective which must be considered,
albeit that the Tribunal must consider objectively the effect of what has
taken place on someone in the employee’s position”19.
38. It is less clear whether, under regs 4(9)-(11), the employee is necessarily
required to resign and terminate the employment relationship. On one view, the
Hogg v Dover College principle applies and an employee could notify the
employer that s/he regards the original contract as being at an end and that,
accordingly, s/he has been constructively dismissed, whilst accepting the existing
or proffered terms of the transferee.
Humphreys and the Opt out: Which party has to be in breach/at fault?
39. The exception to the automatic transfer rule is the right of the employee to opt out
of transfer. In Katsikas -v- Konstantinidis and Skreb20 the ECJ held that in the
event of a relevant transfer employees were entitled to object to the transfer of
their contract of employment or employment relationship. It also held, however,
that what happened to the contract of employment in the event of an employee
declining to be transferred is a matter for the Member State to determine.
40. The application of Katsikas in this country led to s33 of the Trade Union and
Employment Rights Act 1993 which amended the 1981 Regulations so that old
reg 5(4A) provided that employees were entitled to "object to becoming employed
by the transferee". If they did so, however, reg 5(4B) stated that they would not
be treated "for any purpose" as having been dismissed by the transferor. These
provisions are now regs 4(7) and (8) of the 2006 Regulations.
41. As noted above, the ECJ revisited the opt out in Merckx21. Article 4(2) of the
ARD provides that if the employment is terminated because of a substantial
change to an employee's working conditions which is to his detriment, the
employer is to be regarded as responsible for the termination. The Court held
that it followed that the Katsikis case did not leave Member States complete
freedom as to the fate of employees who choose not to transfer. Rather, they
were obliged to provide that termination by the employee in these circumstances
is dismissal.
19 Paragraph 32
20[1993]
21
IRLR 179
[1997] ICR 352 ECJ
13
42. A potential limitation on the Merkx point is highlighted in the decision of the EAT
in Sita (UK) Ltd v Burton22. Here, an ET found that there had been a constructive
dismissal where employees had resigned more than two weeks before transfer
because of remarks made by the transferee about the regime which would apply
after transfer. It held that "the transferee's behaviour was such as to lead a
reasonable employee to suspect that their terms and conditions might change
substantially" and that this struck at the relationship of trust and confidence which
must exist between employer and employee.
43. The EAT reversed this decision. For there to be a constructive dismissal, there
had to be a breach of contract by the employer of the employees at the relevant
time. At the time of the resignations the transferor was the employer. It could not
be said that it was a breach of contract to cause or permit the employees to hear
what the transferee had to say in the course of pre transfer consultation. It would
only be in very rare cases that a third party could be held to have caused a
breach of the duty of mutual trust and confidence, and this case was not in that
category. Nor could there be a breach of this term where the employees had a
remedy against the transferee under the Regulations.
44. Arguably, the Sita decision accorded with the text of the old reg 5(5), which
envisaged that the changes to working conditions have been "made", and with
the limited scope for the doctrine of anticipatory breach in the common law of
constructive dismissal23. However, since it was not argued on the basis of
anticipatory breach, the decision could not be read as ruling out constructive
dismissal claims in cases where employees resigned prior to transfer in response
to an unequivocal indication by the transferee that it did not intend to observe
existing terms and conditions. Indeed, in Sita itself, the possibility of an argument
that there had been a breach of mutual trust and confidence by the transferor
was not ruled out in cases where the transferor knows that the consequences of
transfer are dire and the employee has no other remedy under the Regulations.
The example given by the EAT related to health and safety.
22[1997]
23See
IRLR 501
Harrison v Norwest Holst Group Ltd [1985] ICR 668 CA
14
45. The anticipatory breach argument was then tested in the CA in University of
Oxford v (1) Humphreys and (2) Associated Examining Board24 which held that:
45.1.
an employee who exercised his right to object to transfer under the old
regs 5(4A) and (4B) (new reg 4(7)) could nevertheless allege constructive
dismissal where the reason for his objection was an actual or proposed
substantial change in his working conditions which were or would be to his
detriment; and
45.2.
if he did so, liability for the constructive dismissal did not transfer to
the transferee. Indeed reg 5(4A) (new reg 4(8)) made express provision to
this effect.
46. The combination of new regs 4(9)-(11) with the decision of the CA in University of
Oxford
v (1) Humphreys and (2) Associated Examining Board is potentially
potent. Applied to reg 4(9), Humphreys may mean that an anticipated substantial
change in working conditions to the detriment of an employee post transfer will be
sufficient to ground a constructive dismissal claim against the transferor whether
or not any breach of contract will occur
25.
Indeed, the logic of the decision of the
Chancery Division in New ISG Ltd v Veron26, where it was held the right to opt
out can be exercised after transfer, would suggest that the employee could resign
after transfer and claim against the transferor.
47. Given that the question whether a change is “substantial” will be one of fact for
the ET, and given the Tapere approach, this may render the position of the
transferor precarious where:
47.1.
Certain terms and conditions cannot be replicated by the transferee.
The classic examples are profit share, share option, share save and other
schemes which are tailored to the transferor’s business. The transferee may
24
[2000] ICR 405 CA.
25 Note that regulation 10(3) expressly rules out arguments based on Humphreys that
failure by a transferee to provide equivalent occupational pension rights may give rise to a
right to claim constructive dismissal against the transferor. The position viz a viz the
transferee is, however, left open.
26 [2008] ICR 319 Ch D
15
have arguments that there is no obligation to offer such schemes, but what
effect will this have on the transferor’s position? Even if, as is often the case,
the transferee offers compensation, this may not be sufficient to avoid
constructive dismissal claims. Although the decision in Mitie Management
Services v French
27
suggests that provision of a substantially equivalent
scheme would be sufficient to avoid claims, the assessment of substantial
equivalence is by no means straightforward where benefits in kind (eg
shares) are concerned.
47.2.
Terms will be replicated but working conditions will change. Applying
Rossiter in the CA, the argument that a claim can be brought against the
transferor under the Humphreys principle would only be available if it could
be shown that there was an anticipatory breach of contract. As pointed out
above, however, reg 4(9) will now mean that no breach of contract is
required.
48. There is also an interesting question as to how the remedy against the transferor
should be assessed in this sort of case? If an employee resigns and relies on
Humphreys, will it be permissible for the employer to argue that his dismissal was
inevitable and that there should therefore be a 100% Polkey reduction?
Determining the reason for dismissal
Whose reason is it?
49. The ET should examine the reason for dismissal of the employer which
dismissed. This may seem an elementary proposition, but the decision of the
EAT in Tuck v BSG Property Services Ltd28 illustrates its importance. Here, the
Council dismissed the employees prior to transfer in circumstances where the
transferee would have had a potentially valid reason for dismissal, whereas the
Council had no reason other than the transfer itself. The question was whether
the transferee, to whom the liabilities arising out of the dismissals were
transferred, could rely on the fact that it had a valid reason not to employ the
employees. The answer given by the EAT was that the transferee could not rely
27 [2002] IRLR 512 EAT
28
[1996] IRLR 134 EAT
16
on its reason for dismissal given that the transferor had dismissed. Accordingly,
the dismissals by the Council were automatically unfair and the transferee was
liable. Similarly, the Court of Session in Hynd v Armstrong and others
29
held that
a transferor cannot rely on a transferee’s diminishing need for staff in seeking to
establish an ETO reason for dismissal prior to the transfer taking place.
50. An important consequence of this point is that pre-transfer dismissals are often
far more risky than post-transfer ones. In Wheeler v Patel30 and Gateway Hotels
Ltd v Stewart31 transferors dismissed their employees shortly before transfer.
The view of the EAT was, in essence, that unless the dismissing employer can
show that the reason for dismissal relates to the conduct of the business itself,
rather than a desire to make it more saleable, the likely conclusion is that the
reason for dismissal was the transfer itself. This was also the view of the CA in
the recent case of Spaceright Europe Ltd v Baillavoine32 The implication of this
approach is that since in many cases the transferor is, by definition, not
proposing to conduct the business it will be easier to establish that the reason for
dismissal in such circumstances was the transfer itself. Conversely, of course,
since the transferee is proposing to conduct the business, dismissals by the
transferee may, in appropriate circumstances, be less likely to lead to the
conclusion that the reason was the transfer, rather than some other substantial
reason.
51. An illustration of the principle that the ET should examine the reasons of the
decision maker is the decision of the CA in Dynamex Friction Ltd v Amicus &
Others33 . Here Friction Dynamics Limited recognised the trade unions Amicus
and the Transport and General Workers Union (“TGWU”). After it was decided
to restructure the business, the TGWU called a strike. Friction's response was
to repudiate the contracts of employment with the result that 86 of the strikers
were dismissed. They brought claims before the ET, which found that they had
been unfairly dismissed. The compensation payable by Friction was assessed
at approximately £3m which would render Friction insolvent. The Managing
29 [2007] IRLR 338
30[1987]
IRLR 217 EAT
31[1988]
IRLR 287 EAT
32 [2012] IRLR 111 CA
33 [2008] IRLR 515
17
Director, Mr Smith, therefore decided to petition for an administration order and
this was granted. One of the joint administrators. Mr Rutherford, then dismissed
all the employees of Friction, claiming that there was no money to pay them.
Subsequently, there was a transfer of the undertaking to two companies,
Dynamex Friction Ltd and Ferotec Realty Ltd, which were controlled by Mr
Smith.
52. An issue arose as to whose reasons the ET had to ascertain in considering
whether the reason for the dismissals was connected with the transfer or
whether it was an economic one, for the purposes of old reg 8. The CA held
that the employer was Friction, which was in the control of Mr Smith down to
the making of the administration order. But upon the making of that order the
powers of management were transferred to the joint administrators exclusively,
who acted as agents for Friction. It was Mr Rutherford who had effected the
dismissals. The relevant question was, therefore, as to his reasons for effecting
them.
53. The ET had found as a fact that Mr Rutherford had decided that he had no
option but to dismiss the employees because the company had no money with
which to pay them. That was an economic reason. Once it had been
established that it had been Mr Rutherford's decision to dismiss, then nothing
done by Mr Smith before the decision or after it could have had any bearing on
the reasons why Mr Rutherford had acted as he had done. The facts might give
rise to the inevitable conclusion that Mr Smith had cynically manipulated the
insolvency of Friction but Mr Smith had not decided to dismiss the employees;
Mr Rutherford had, and he had done so for economic reasons.
When is "the transfer or a reason connected with it ... the reason or principal reason
for ... dismissal"?
54. The ET's approach to the reason for dismissal issue should be in accordance
with existing and well-established principles. Accordingly:
"A reason for dismissal is a set of facts known to the employer or beliefs held
by him which cause him to dismiss the employee".34
34See
Abernethy v Mott, Hay & Anderson [1974] IRLR 213 CA
18
55. Obviously, however, in every case it will be a question of fact as to the
employer’s reason for dismissal. This will require the employer to appear at the
ET and explain what caused it to dismiss. Subject to the evidence, it will then be
open to the ET to accept or reject this explanation.
56. There has been some controversy in the authorities as to the closeness of the
connection between dismissal and the relevant transfer which is required in order
for old reg. 8(1) (now 7(1)) to apply. This question comes into sharp focus where
the dismissals take place before it has been agreed that an undertaking will be
transferred. The issue is whether the fact that the transferor dismissed with a
view to making the business more attractive to a purchaser is sufficient to support
the conclusion that the reason for dismissal was the transfer or a reason
connected with it.
56.1.
In Ibex Trading Co Limited v. Walton35, emphasis was placed on the
definite article in the old reg 8(1) and it was said that the specific transaction
which actually occurred must have been in contemplation at the time of
dismissal. However, the EAT recognised the need for ETs to be alert to the
possibility that one potential transferee may drop out and be replaced by
another “at the last minute”.
56.2.
However, in a number of cases e.g. Harrison Bowden Limited v.
Bowden36 and Morris v. John Grose Group Limited37 it has been said that the
old reg 8(1) could apply even if the transferor did not at the time of the
dismissal have a particular transaction or prospective transferee in mind. In
the Morris case the EAT said that there had to be a relevant transfer for old
reg 8(1) to apply but the test was “whether a transfer to any transferee who
might appear, or a reason connected with such transfer, was the reason or
principal reason for the dismissal”.
35[1994]
IRLR 564 EAT
36[1994]
ICR 116 EAT
37[1998]
IRLR 499 EAT
19
56.3.
In Michael Peters Limited v. Farnfield38 the EAT said that it saw no
significance in the use of the definite article in old reg 8(1) and viewed Ibex
Trading as “not inconsistent” with the Bowden case.
56.4.
However, in the case of CAB Automotive Ltd v Blake & Others 39 the
EAT held that the Morris line of cases should be followed as a matter of
precedent and because the broad approach was more consistent with the
objectives of TUPE. The Morris line of authority has now been approved by
the CA in Spaceright Europe Ltd v Baillavoine40.
57. Other cases of significance to this issue are:
57.1.
Longden & Paisley v. Ferrari Limited and Kennedy International
Limited41 where the transferee nominated those employees whom it wished
to keep and the transferor dismissed the rest. Notwithstanding this, the EAT
held that it was permissible for the ET to find that the reason for dismissal
was not the transfer or a reason connected with it.
57.2.
Warner v. Adnet42 in which the CA upheld a finding that the reason for
dismissals by the transferor which was in receivership was an attempt to
continue to trade, rather than the transfer itself.
The Concept of an ETO Reason
58. Much anxious thought has been given to the scope of the concept of an ETO. If
old reg 8 had reflected the underlying principle accurately, this may have been
unnecessary because, under the ARD, arguably the essence of the ETO reason
is that it is a catch-all expression to describe the fact that the transfer itself was
not the ground for dismissal. However, the “or a reason connected with it”
formulation (which is retained in reg 7) has led to the view that the concept of an
38[1995]
39
IRLR 190 EAT
UKEAT/0298/07
40 [2012] IRLR 111 CA
41[1994]
IRLR 156 EAT
42(supra)
20
ETO reason has more content than that because it has to displace another
reason connected to the transfer. There are various cases on the scope of an
ETO reason, but this point needs to be kept in mind in considering them.
59. For example, the cases of Wheeler v. Patel, Gateway Hotels Limited v. Stewart
Ibex Trading and Spaceright, all of which are discussed above, make the point
that the ETO reason must relate to the conduct of the business itself rather than
reflect a desire to make it more saleable. However, arguably this is essentially a
way of saying that there must be a reason for dismissal other than the transfer
itself.
60. Similarly, in Whitehouse v. Blatchford43, the transferee was an incoming
contractor which reduced the number of technicians employed in the undertaking
by one. Its reason for doing so was that the client hospital awarded the contract
on the basis that the workforce would be reduced in this way. The CA held that it
was permissible for the ET to conclude that the dismissal was for an ETO reason,
notwithstanding the “collusion” between the client and the transferee. The reason
for the dismissal of the employee was that the transferee’s undertaking would be
operated with one fewer employee, rather than the transfer itself, and the transfer
was therefore merely “the occasion for” the dismissal.
61. What also emerges from the Whitehouse v. Blatchford case is the point that the
mere fact that the transferor or transferee agreed that the dismissals would take
place is not decisive. The question remains whether they agreed for some ETO
reason or whether they agreed simply in order to facilitate the transfer.
62. In Berriman v. Delabole Slate Limited44 the CA held that a mere desire to
harmonise terms and conditions would not be an ETO reason. There needed to
be a change in the numbers or functions of the workforce. Moreover, this needs
to be the aim of the employer rather than simply the outcome. It is important to
note, however, that here the question was not whether the reason was
“economic, technical or organisational”. Rather, it was whether the reason
“entailed changes in the workforce”. In order to give this expression colour, the
43 [2000] ICR 542 CA
44[1985]
ICR 546 CA
21
Court said, it had to be shown that there needed to be changes in numbers or
functions, rather than merely terms and conditions. Berriman was also a
constructive dismissal case where the consequence of the attempted
harmonization was that the Claimant resigned and claimed constructive
dismissal, such that there was a reduction of one in the number of employees.
This, said the CA, was not enough given that the employer was not intending to
reduce numbers – its only intention was to harmonise terms and conditions.
63. It follows from this that any change which results in a reduction in the employer’s
requirement for employees is capable of justifying a dismissal because it entails
changes in the workforce.
63.1.
Redundancy is therefore a classic ETO reason, as one would
expect.45. Similarly, any reorganisation which changes the functions of the
workforce in such a way as to justify a dismissal of the employees also
“entails changes in the workforce”.
63.2.
Another classic example is Porter v. Queen’s Medical Centre46 where
a change in the way in which the relevant neonatal and paediatric services
were to be provided justified the transferee’s view that the whole of the
affected workforce should be dismissed and invited to apply for jobs in the
new organisation.47
64. Recently, the Berriman analysis has been considered by the EAT in Meter U Ltd
v Hardy & Others48. Here, the transferee accepted that TUPE applied to a group
of meter readers who therefore became its employees. However, it made clear at
the time of transfer that it would not retain them as such as it did not employ
people to do this job; rather, it engaged meter readers under franchise
agreements set up with companies established by the individuals. After transfer
the transferee dismissed the transferred employees, purportedly on grounds of
redundancy, and offered them the same role on less generous terms, and as
45See
Gorictree Limited v. Jenkinson [1984] IRLR 391 EAT and Whitehouse v.Blatchford (supra).
This is now made explicit in the new reg 7(3)(b)
46[1993]
47See,
IRLR 486 HC
also, Crawford v. Swinton Insurance Brokers Limited [1990] ICR 85 EAT
48 UKEAT/0206/11/CEA
22
franchisees. The question was whether there was a change in the numbers of the
workforce in circumstances where there was the same number of meter readers
before and after the dismissals, albeit there were now no employees and all
meter readers working on the contract were franchisees. The EAT held that,
assuming that the franchise arrangements were not a sham, the companies with
which the transferee contracted were not part of its workforce, only its employees
were, and there had therefore been a change in the numbers of the workforce
given that the transferee no longer had any employed meter readers.
The Concept of Fairness in the Context of a Relevant Transfer
65. Assuming that the relevant employer establishes a valid reason for dismissal, the
question is then whether it acted fairly within the meaning of Section 98(4),
Employment Rights Act 1996. There is not a great deal of case law on this
question, but the underlying principle suggests that the ET’s approach to it should
be precisely the same as it would be in any other unfair dismissal case49. Thus, if
the employer establishes that it dismissed on the grounds of redundancy it must
also show that it took the procedural steps which should ordinarily be associated
with a fair redundancy process and, if it did not do so, it risks a finding of
unfairness.
66. For cases on this issue see:
66.1.
Nationwide Building Society v Benn & Others50: the question whether
technically there has been a breach of reg 13 is irrelevant to the question of
fairness albeit failure to consult with representatives may, of itself, be taken
into consideration. Also, the ETO need not entail changes to the entirety of
the workforce.
66.2.
First Scottish Searching Services Ltd v McDine51 : lack of system of
moderating sets of scores for the two sets of employees in redundancy
exercise (transferred and incumbent employees of the transferee) did not
necessarily render the system of selection unfair.
49See
Brush Transformers v TA Barnes and others (EAT 256/99)
50 [2010] IRLR 922 EAT
51 UKEATS/0051/10
23
Remedy
67. In the same way, the principles relating to remedy are the same as those which
apply
in
the
ordinary
law
of
unfair
dismissal,
including
reinstatement/reengagement.
Who is Liable?
The Litster Principle
68. The decision of the House of Lords in Litster v. Forth Dry Dock52 is well-known.
Here, the House had to consider the effect of an attempt by employers to avoid
the consequences of a relevant transfer by dismissing the employees shortly
before it was to take place. On this basis, the employers argued that since the
employees were not employed in the transferred undertaking “immediately before
transfer” for the purposes of the old reg 5(3) (new 4(3)) they were not protected.
This argument was rejected on the basis that employees would be deemed to be
employed immediately before transfer if the reason why they were not so
employed was that the employer had dismissed them in circumstances to which
the old reg 8(1) applied. The consequence of this was that the transferees were
liable in any event. The Litster principle is now enacted in reg 4(3).
69. The Litster decision gave rise to a question whether dismissal by the transferor
other than on grounds of a transfer, ie for an ETO reason, meant that the relevant
liabilities did not transfer.
Applying the logic of Article 4.1 and reg 7(2), the
answer to this question would fairly obviously appear to be in the affirmative. The
Litster principle applies if the circumstances fall within reg 7(1), but reg 7(1) does
not apply if the reason for dismissal is an ETO reason. This view is confirmed by
the EAT in Kerry Foods v. Creber53. The consequence is that if a transferor
dismisses in circumstances which fall within reg 7(2) it is potentially liable in
respect of such dismissals, and the transferee is not.
52[1989]
IRLR 341 HL
53[2000]
IRLR 10 EAT
24
70. Note that the Litster principle probably only applies to employees employed in the
undertaking. Employees not employed in the undertaking who are dismissed on
the grounds of the transfer would not have transferred in any event and liability in
respect of their dismissal therefore attaches to the transferor.
71. Note, also, Pressure Coolers Ltd v Molloy54: reg 8(3) has the effect that, in
insolvency cases, liability for the basic award and notice pay arising out of
dismissals which take place pre transfer passes to the Secretary of State; liability
for post transfer dismissals by the transferee does not55.
Humphreys Cases
72. As noted above, where the employee objects to transfer in anticipation of a
breach by the transferee, the transferor is potentially liable. It would appear that
the effect of new regs 4(9) and (10) will be that the same is true where he objects
to an anticipated substantial change in working conditions post transfer which is
to his detriment, whether or not it will amount to an anticipatory breach.
THOMAS LINDEN QC
Matrix Chambers
Gray’s Inn
LONDON
WC1R 5LN
tomlinden@matrixlaw.co.uk
15th March 2012
54 [2011] IRLR 630 EAT
55 See, further, Part XII Employment Rights Act 1996
25