Varying terms and conditions of employees whose employment transfers to the transferee on a transfer of a business to which TUPE relates, gives rise to serious legal difficulties. This is so even where the employees freely agree to those changes. The Court of Appeal in Regent Security Services Limited v Power [2007] has held that employees may benefit from new rights conferred on them by the transferee so that the transferee cannot rely on constraints within TUPE upon transfer-related variations to avoid being bound by any new terms that it has agreed with the employees.

What happened in this case?

Mr Power’s employment was transferred by TUPE transfer to Regent in 2005. Prior to the transfer, he had a retirement age of 60. Following the transfer, he agreed to be bound by Regent’s staff handbook, according to which he would be due to retire at 65. When he reached 60, he was compulsorily retired and claimed unfair dismissal. Relying on previous case law based on EC law on this issue, Regent argued that the purported change to his contractual retirement age was void as it was by reason of a TUPE transfer (the point being that EC law holds that a transfer of undertaking can never be the reason for a contractual variation and therefore any such purported variation is void). Regent therefore claimed that Mr Power’s normal retirement age after the transfer remained at 60.

The Court of Appeal (CA), upholding the decision of the Employment Appeal Tribunal (EAT), decided in Mr Power’s favour. It said that the aim of the EC law which TUPE is intended to implement is to safeguard the acquired rights of employees on the transfer of an undertaking. It is therefore inconsistent with this aim not to allow an employee to receive benefits contractually conferred on them by the transferee. Following a TUPE transfer, employees retain their existing rights and these rights cannot be taken away even with their agreement. There is, however, nothing in EC or UK law to prevent those employees from obtaining additional or improved rights. This means transferred employees can choose between enforcing the transferred rights and the new rights.

What does this decision mean for employers?

This decision confirms that employees are permitted to benefit from new rights given to them by the transferee after the transfer. At the same time, it also confirms that employees’ rights in existence before a TUPE transfer cannot be taken away by the transferee to the employees’ detriment, even if they subsequently agree to the change in terms. Accordingly, even if transferring employees sign up to new terms and conditions after the transfer, they will still be able to enforce more favourable rights which existed in their employment with the transferor.

However, does this ruling mean that employees can “have their cake and eat it”? Can employees enforce original terms but at the same time continue to benefit from other more favourable varied terms? The EAT suggested that the transferring employees may have to give up additional benefits obtained under the varied contract if they wish to rely on their existing terms. However, as the Court of Appeal did not have to consider this point, it is possible that the EAT’s suggestion may not be followed in future.

A possible approach for employers would be to include a term in varied contracts providing that should the employees seek to enforce original terms, they will have to give up new benefits under the varied contract.

Note that this decision concerned TUPE 1981, which has now been replaced by TUPE 2006. TUPE 2006 attempts to clarify the legal position as regards changing terms after a TUPE transfer. Under TUPE 2006, changes in terms are permitted where the sole or principal reason for the change is unconnected with the transfer, or, where the reason for the variation is connected with the transfer, but that reason is economic, technical or organisational reason entailing changes in the workforce (“ETO reason”). This new provision does not materially change the implications of this decision for employers. This is because the new provision is very narrowly drafted and does not expand the circumstances in which an employer can change terms and conditions following a transfer beyond what had previously understood to be the case from applicable case law. Although a transferee wishing to harmonise terms and conditions by issuing new varied contracts to transferring employees may do so for economic, technical or organisational reasons, the new provision for harmonisation will only apply where the reason for it also entails changes in the workforce. This has been held to mean a change in numbers and functions and not just terms, which will not invariably be the case where there is a change in terms.

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