Dismissals for refusing to accept pay cuts after a TUPE Transfer were not for an ETO reason, even when the pay cuts were to avoid redundancies.

In Hazel v Manchester College, the College won a contract to provide services to the Prison Service. This resulted in a TUPE transfer to the College of 1,500 employees in August 2009. After the transfer, the College carried out two reviews which separately recommended: (i) a redundancy programme and (ii) a harmonisation exercise. Following various rounds of consultation, including with UCU, the College offered new terms to employees that included significantly lower pay, saying that further redundancies would be required if the pay cuts were not accepted. Some employees did not accept the new terms and were dismissed. They raised unfair dismissal claims. 

The Court of Appeal said that dismissing employees for refusing to sign new terms was for a reason connected to the transfer, so they were automatically unfair unless there was an "economic, technical or organisational reason entailing changes in the workforce" (ETO reason) for them.

Case law emphasises that an ETO reason should entail "changes in the workforce" involving changes to the actual numbers employed or the jobs they do.

The Court concluded there was no ETO reason here, because no changes in the workforce were proposed at the time of the harmonisation exercise. It was not enough that the redundancy process affecting other employees had not concluded.

The Court accepted that the proposed harmonisation was - in a general sense - related to the redundancies as they were part of the same package of proposals, and both were intended to contribute to the College's costs savings. However, that was not sufficient. What mattered were the factors on the College's mind that caused it to dismiss the employees.

The Court said it was plain that, at the time of the dismissals, the need for redundancies played no part in the College's thinking, which was motivated by the employees' refusal to agree to new terms and conditions.

What this means for you

Employers faced with this situation should bear two points in mind:

  • The new TUPE Regulations (TUPE 2014) came into force on 31 January. The test for deciding whether a dismissal is automatically unfair has been narrowed so that "connection" with a TUPE transfer is no longer sufficient to make a dismissal automatically unfair (in the absence of an ETO reason). The test now is – was the TUPE transfer the reason for the dismissal? Under TUPE 2014, there is greater scope for employers to say that the reason for the dismissals was failing to agree new terms and conditions, not the TUPE transfer itself. In which case, such dismissals would not be automatically unfair. A degree of caution is still required, however, because the courts are likely to scrutinise very carefully the link between a transfer and a dismissal. CJEU case law certainly pays close attention to the timing of variations following transfers.
  • ETO reasons are still important, since, if the courts choose to apply a narrow construction to the provisions in TUPE 2014, employers will need to rely on an ETO argument to ensure dismissals are not automatically unfair. It is clear that in Hazel the Court considered that the redundancy and harmonisation exercises were separate. However, if a harmonisation exercise is integrated with a redundancy exercise, e.g. if lower paid roles are offered as suitable alternative employment within a numerically reduced workforce, an employer would have a better prospect of arguing that there was an ETO reason for any dismissals.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.