TUPE and Variations of Contract – today’s brain-teaser

To the considerable frustration of many a transferee employer, the scope for varying the contractual terms and conditions of transferring employees is notoriously limited.

TUPE 2006Reg 4 renders void any amendment the sole or principal reason for which is either:

(1)   the transfer itself; or

(2)   a reason connected with the transfer.

The latter limb is qualified, however. If the transfer-connected reason is an economic, technical or organisational (“ETO”) reason entailing changes in the workforce, the amendment will not be void.

Amongst the changes introduced by the new Draft TUPE Regulations is a recasting of Reg 4. Reg 4(4) will now render amendments void in a narrower range of circumstances:

“… any purported variation of a contract of employment that is, or will be, transferred by paragraph (1), is void if the reason for the variation is the transfer.”

There are two immediately apparent changes. First, the Regulation no longer makes reference to the “sole or principal reason”. Arguably it now only applies where the transfer itself is the sole reason for the variation.

Second, there is no reference to reasons “connected with” the transfer. The implication appears to be that variations which are for reasons which are merely transfer-connected should be safe.  There is, however, a big but and here at Hard Labour we like big buts and we cannot lie. New Reg 4(5)(a) will provide:

“Paragraph (4) does not prevent a variation to the contract of employment –

(a)   if the reason for the variation is an economic, technical or organisational reason entailing changes in the workforce …”

What is the purpose of this provision? An ETO reason is a transfer-connected reason. If Reg 4(4) no longer applies to transfer-connected reasons – what is the point of Reg 4(5)(a)? Should it be taken to imply that a non-ETO transfer-connected reason will still fall within the scope of Reg 4(4)? Answers in the comments below, please.

5 thoughts on “TUPE and Variations of Contract – today’s brain-teaser

  1. The Gov’s explanation in its consultation response:

    “The Government will retain the exception for economic, technical or
    organisational reasons entailing changes in the workforce (ETO) because there
    may be some instances where the reason for the change is regarded as the
    transfer itself but there may be an ETO.

    ….

    Retaining the exception may be of limited use in practice.”

    Page 21 paras 6.7-6.8

    https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/236932/bis-13-1023-transfer-of-undertakings-protection-of-employment-regulations-2006-government-response-to-consultation.pdf#page=21

    • I can’t make that make sense though. If the Reg 4(4) only applies where the reason is the transfer, it can’t be for an ETO reason as well unless the Govt means smething special when they talk of the transfer being the reason. There is some suggestion in the guidance they have that in mind:

      It will be a new test so that a reason under the existing test which might be considered ‘connected with’ the transfer might still make changes void.

      This would mean that if the consultation response were to be taken into account in interpreting the test:

      (1) It would be using a definition of “reason” that was different to almost every other area of employment law; and

      (2) At best transfer-connected reasons “might” count – not exactly the certainty we all crave.

    • The same change is effected in the recast regulation 7 so far as dismissals are concerned. Dismissals are unfair if the reason for the dismissal is the transfer (new Regulation 7(1)). This does not apply to dismissals that may take place for economic, technical or organisational reasons entailing changes in the workforce of either the transferor or transferee before or after a relevant transfer (regulation 7(2))
      This accords Article 4(1) of the Directive which provides:

      “The transfer of the undertaking, business or part of the undertaking or business shall not in itself constitute grounds for dismissal by the transferor or the transferee. This provision shall not stand in the way of dismissals that may take place for economic, technical or organisational reasons entailing changes in the workforce.”

      In considering new Regulation 4(5)(a) and 7(2) regard will therefore need to be had to how Article 4(1) of the Directive has been applied by the CJEU as these regulations will be read to be compatible with the Directive. There is a suggestion in Martin v South Bank University (Case C-4/101) that the CEJU regard a reason that is connected to the transfer as falling within the protection of the Directive see § 44 – 45:

      “44. In circumstances such as those in the main proceedings, the alteration of the employment relationship is nevertheless connected to the transfer. It is clear from the file that SBU wished merely to bring the terms upon which it offered early retirement to employees of Redwood College into line with those offered until that time to its other employees and, in such circumstances, an alteration of the employment relationship must be regarded as connected to the transfer. That the situation in the main proceedings is of that type is confirmed by the fact that, immediately after the transfer, SBU offered the employees from Redwood College a contract of employment on its terms, which the applicants nevertheless refused. It should, however, be stated that the mere fact that the applicants had joined the higher education retirement scheme has no bearing on this analysis: that factor concerns their retirement rights per se, which are the subject of the derogations under Article 3(3) of the directive, and not the terms of early retirement.

      45. Since the transfer of undertaking is indeed the reason for the unfavourable alteration of the terms of early retirement offered to the employees of that entity, any consent given by some of those employees to such an alteration is invalid in principle.”

      If this is followed then it may turn out to be a case of plus ca change plus ca meme chose.

      • Treating non ETO transfer-connected dismissals as being by reason of the transfer is a logical position as a matter of policy and may reflect the language of ECJ decisions but as the existing position was compatible with the ARD it is hard to see what the amendment adds beyond confusion and the chance for us all to earn a bit of extra money arguing the point.

      • I suppose that the difference would be that an ETO could be relied upon for where the reason is the transfer now ratehr than just when it’s related to it.

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