Two Employment Appeal Tribunal (EAT) rulings relating to staff acquired under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) suggest that putting such staff on the same employment terms as the transferee's pre-existing workforce may be effective, provided that the transferee makes the change for a reason other than simple harmonisation.

Following a TUPE transfer, the transferee often wishes to change the employment terms of the newly acquired employees. Where the purpose is simply to harmonise the terms with those of the transferee's pre-existing workforce for the sake of administrative efficiency, this is viewed as a change which is connected to the transfer. As a result, such a change is invalid under TUPE, even if the employees in question agree to it. Does it make a difference to this outcome that a transferee has some other motive, apart from tidy-mindedness, for changing the acquired employees' terms? To the surprise of some commentators, two recent EAT rulings suggest that it does, at least in some cases.

In Smith v Brooklands a change was agreed with transferred employees two years after the transfer. According to the tribunal's findings of fact, the reason for the change was the genuine view of the transferee's human resources director that the employees were being paid incorrectly by mistake and in a manner that was out of step with normal practice in the sector - they were being paid for full-time hours when working part-time. The EAT ruled that this was not a transfer-connected reason; therefore, the change was valid. The fact that the change would not have occurred but for the transfer was irrelevant, as was the fact that, in reality, the pay rates were not a mistake.

In Enterprise Managed Services v Dance the EAT accepted that changes aimed at improving productivity were not connected to the transfer, although the transferred employees were given the same terms as the transferee's pre-existing staff. The transferee already provided one type of service to a client and, in response to the client's requirements for improvements to the service level, instituted changes to its employment terms to improve productivity. On a re-tender, the transferee subsequently won a contract to provide an additional service to the client and acquired the staff from the outgoing contractor. The transferee considered that it would need to bring about the same productivity improvement in the acquired staff in order to meet the client's contractual requirements. It therefore sought to agree the changes to terms that it had applied to its pre-existing staff.

The EAT noted that this was not a case of a transferee simply wishing to harmonise for the sake of tidiness. The harmonisation was merely a consequence of the fact that:

  • the terms needed to be changed in order to improve productivity and thereby retain the contract; and
  • the transferee had already made the changes successfully for the same purpose in its indigenous workforce, and therefore considered those terms fit for purpose.

However, the case has been remitted to a new tribunal because of flawed reasoning by the majority in the original tribunal.

The cases illustrate that tribunals may be willing to accept that a transferee has a reason other than a desire to harmonise for making changes that end up harmonising terms, and that such a reason can be unconnected with the transfer. However, transferees should be cautious - evidence suggesting such a reason is likely to be examined sceptically. For example where the argument is that the reason is to correct terms which are out of kilter with the market standard, this may not succeed where the transferee has simply assumed that the market standard is what its pre-existing workforce receives.

For further information on this topic please contact Andrew Brown at Herbert Smith LLP by telephone (+44 20 7374 8000), fax (+44 20 7374 0888) or email ([email protected]).