It may seem an attractive option for transferor employers to seek to dismiss and re-engage employees following a TUPE transfer, in order to harmonise the terms of the transferred employees with those of their existing employees. However, to proceed with dismissals in such circumstances is very risky.

This is because under the TUPE Regulations if the principal reason for a dismissal is the transfer itself, or a reason connected with the transfer that is not an "economic, technical or organisational reason entailing changes in the workforce", such dismissal would be found to be automatically unfair if the employee were to bring a Tribunal claim. "Entailing changes in the workforce" is not something that has been defined in statute but the courts have interpreted it to mean a change in the numbers employed, or in the functions performed by the employees.

Manchester College v Hazel

The Employment Appeal Tribunal (EAT) has recently handed down its decision, in the case of Manchester College v Hazel and another, addressing the question of in what circumstances a post-transfer dismissal might be automatically unfair - and as to what the appropriate remedy might be.

In that case, the Claimants TUPE transferred from the Learning and Skills Council to Manchester College. The service the college was to provide was offender learning and the Claimants were academic staff, although that was not material to the decision.

After the transfer took place it became apparent that there were additional costs in providing the contracts which had not been appreciated by the college before. In the circumstances and against the backdrop of difficult economic conditions in the higher education sector, the college undertook a process of costs savings - about six months after the transfer - including requesting voluntary redundancies. Thereafter it began a process of harmonising terms and conditions across a number of different contracts of employment.

The Claimants were asked to agree to a drop in their salaries. They refused and so were then dismissed and offered re-engagement on new terms, which they accepted. They then sued the college for unfair dismissal.

At first instance the Employment Tribunal (ET) found that the dismissals were automatically unfair: it held that the reason for the dismissal was connected with the transfer and was not for an "economic, technical or organisational reason entailing changes in the workforce". Although there had indeed been a redundancy process resulting in a drop in the number of people employed - which might have met the statutory definition such that the dismissals were fair - that was not why the Claimants had been dismissed. The Claimants were not dismissed for redundancy (a change in the number of the workforce). They were, the Tribunal found, dismissed because of the harmonisation of terms – a distinct process which took place after the redundancy round.

The appropriate remedy was re-engagement on the new contracts, retaining the old (higher) rates of pay, until their colleagues (who had agreed to the new terms) had caught up.

The EAT agreed with the decisions of the ET, both that the dismissals were automatically unfair and that re-engagement should be ordered.

Employers to be cautious when effecting post-transfer dismissals

This decision serves as a reminder that great caution must be taken in effecting post-transfer dismissals. Even in cases such as these, where other employees had been dismissed for redundancy, and even where the employer was arguing that without the changes to terms, more redundancies would be necessary, dismissals can be automatically unfair. The reason for the Claimants’ dismissals was their refusal to sign new terms, which was a reason connected with the transfer and not an economic, technical or organisational reason entailing changes in the workforce.

Had the redundancy process still been continuing and had the Claimants still been at risk, the decision might have been different. It is nonetheless difficult to draw broad principles as decisions in this area are particularly fact-sensitive – other than the principle that great caution must be exercised in effecting post-transfer dismissals!

Power of Tribunals to award remedy

This case is also a useful reminder of the broad power Tribunals have to award remedy - in addition or instead of awarding compensation in unfair dismissal cases, they can reinstate an old contract or order the Claimant’s re-engagement. That said, re-engagement (along with reinstatement) is a rarely awarded remedy and it was relevant in this case that the employees continued to work for the employer post-dismissal from their old jobs and so trust and confidence continued.

Read other items in the September 2012 Employment Brief