Employees unfairly dismissed for refusing to accept pay decrease following TUPE transfer

In Hazel v The Manchester College the Court of Appeal recently held that two employees were unfairly dismissed for failing to agree to new terms (including a pay decrease) following a TUPE transfer.

By way of reminder, it used to be the case under Regulation 7 of the TUPE Regulations, a dismissal would be automatically unfair if the sole or principal reason for the dismissal is:

1)     the transfer itself; or

2)     a reason connected with the transfer that is not an economic, technical or organisational (“ETO”) reason entailing changes in the workforce.

“Changes in the workforce” includes any changes to the numbers employed or the functions performed by employees (E.G in redundancy situations).

Following a TUPE transfer, and after a sufficient number of employees had accepted voluntary redundancy offers, the Claimants were informed that they were no longer at risk of redundancy. They were asked to sign a new contract which included a significant pay decrease. The College argued that, unless the contracts were signed, further redundancies would be necessary.

The Claimants refused to accept the new terms and were dismissed. The Claimants then accepted the new terms of employment but brought claims for unfair dismissal, seeking reinstatement of their old terms.

Whilst the cost-saving redundancies carried out by the College post-transfer had involved changes to employee numbers (an ETO reason entailing changes in the work force), and it was accepted that the redundancies and changes to terms and conditions were part of the same cost-saving package, the principal reason for the Claimants’ dismissals was their refusal to accept the new contract terms.

This did not constitute an ETO reason entailing changes to the work force and therefore the dismissal was automatically unfair. The College was ordered to re-engage the Claimants, effectively cancelling their pay decrease.

This decision is an important reminder for employers that post-transfer redundancies and redeployments may amount to an ETO reason, however post-transfer dismissals as a result of changes to employee terms and conditions will most likely not. A Tribunal will identify the sole or principal reason for the dismissal and employers should bear this in mind when carrying out measures post-transfer.

As an aside, on 31 January 2014, the Government amended the wording of Regulation 7 above to remove dismissals for transfer-connected reasons from the automatically unfair provisions in Regulation 7(1). This arguably makes it easier for employers to dismiss following a TUPE transfer; however the exact impact of this change remains to be seen in practice. This is very much a grey area of the law and employers are urged to seek legal advice when considering dismissals post-transfer.