In Xerox Business Services Philippines Inc Ltd v Zeb, the Employment Appeal Tribunal (EAT) was asked to consider:
- the application of the Transfer of Undertakings (Protection of Employment) (TUPE) Regulations in the context of an offshoring of services; and
- whether a transferring employee was entitled to protection of his salary terms if he relocated to the new place of operations in the transferee's home jurisdiction.
From 2009 Jahan Zeb was employed in a finance accounting team and in 2011 his employment transferred under TUPE to Xerox UK Ltd. His contractual place of work was Leeds or Wakefield.
In 2014 the finance accounting team function was offshored from Xerox UK to Xerox Philippines. Xerox believed that TUPE would apply to transfer the employees' employment and that the employees' place of work would remain in Wakefield. Because Xerox Philippines had no requirement for Wakefield-based employees doing finance accounting work, it considered that employees who TUPE-transferred would be redundant.
Therefore, Xerox UK gave the employees the choice of:
- objecting to transfer and being made redundant by Xerox UK with an enhanced package; or
- TUPE-transferring and being made redundant by Xerox Philippines with only a statutory redundancy package.
Another option was to relocate to Manila on local Philippines' terms and conditions which were considerably less generous.
Zeb believed that TUPE entitled him to relocate to Manila while remaining employed on his UK terms and conditions. Xerox disagreed, asserting that any TUPE transfer was on the UK terms in their entirety, including the work-location clause stating "Leeds or Wakefield". Zeb did not object to transfer; therefore, Xerox Philippines made him redundant after the transfer and paid him his statutory entitlements only.
Hearing Zeb's unfair dismissal claim, the Employment Tribunal found that he had agreed to vary his workplace to Manila – as permitted by TUPE – and thus had been entitled to transfer there with his TUPE-protected terms and conditions, including salary. In such circumstances, Zeb's dismissal had been automatically unfair because it was not on the ground of redundancy, but rather on Xerox Philippines' refusal to employ him in Manila on his UK salary.
The EAT allowed Xerox's appeal, pointing out that the aim of TUPE is to preserve an employee's rights after transfer, including rights in respect to pay and work location. Under TUPE, Xerox Philippines had been required to employ Zeb at Wakefield and pay his salary. However, it had not been required to employ him in Manila at the same salary.
The EAT stated that TUPE permits variation of contracts, but the changes must be agreed by both the employee and the employer. Xerox had proposed relocation on local terms, whereas Zeb had been prepared to move only if he retained his UK terms. No meeting of the minds occurred between the parties and, in the absence of clear agreement, there was no contractual variation. TUPE did not entitle Zeb unilaterally to vary the contractual workplace location while protecting his salary.
The EAT criticised the Employment Tribunal for focusing on the reason that Xerox refused to employ Zeb in Manila, rather than applying the statutory test for redundancy. If it had applied the latter test, it would have concluded that the reason for dismissal was that Xerox Philippines' requirements for employees to carry out finance accounting work in Wakefield had ceased or diminished. The tribunal should then have considered whether the principal reason for dismissal had been the TUPE transfer or, as Xerox contended, redundancy.
The EAT stated that Xerox had a strong case for an economic, technical or organisational reason defence. However, it sent the case back to a differently constituted tribunal to decide the reason for dismissal and whether it had been fair.
The EAT's decision is consistent with the interpretation favoured by most commentators on how TUPE applies in this type of situation. TUPE cross-border concerns are becoming more acute, with businesses increasingly offshoring services to lower-cost jurisdictions. (The issue is less likely to arise on a business sale, because the undertaking is usually geographically static.)
The new overseas service provider may not recognise the applicability of TUPE, as it does not usually want or need the employees concerned and it is often uncommercial to maintain their terms. The offer made by the transferee in this case was, in effect, an offer of alternative employment in Manila on reduced salary. The employee was entitled to reject this and be made redundant, but not to demand to transfer on his existing terms.
Offshoring may create the unenviable scenario that neither the transferor nor the transferee is prepared to bear the cost and procedural responsibility for making the redundancies resulting from a cross-border service provision change. Employees may find themselves in a situation where the new provider denies responsibility, refusing to pay them notice or redundancy pay, and they must then try to enforce judgment against an overseas employer. In practice, a commercial solution is usually found – the transferor often takes responsibility, with cost and risk-sharing contractually agreed behind the scenes.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.
For further information on this topic please contact Alison Clements at Lewis Silkin by telephone (+44 20 7074 8000) or email (firstname.lastname@example.org). The Lewis Silkin website can be accessed at www.lewissilkin.com.