Lutak v William West & Son (Ilkeston) Limited IRLB 681 January 2002
Thompson v SCS Consulting Limited and others [2001] IRLR 801
Ralton v Havering FE College [2001] IRLR 738
TGWU v James [2001] IRLR 597

TUPE continues its regular presence in these pages. In February the Court of Appeal will hear the important case of RCO v UNISON, a public sector contracting case on the scope of TUPE.

The European Court of Human Rights has recently ruled non-admissible UNISON's complaint that UK law prevented industrial action over the Private Finance Initative TUPE transfer at University College London Hospital.

The consultation period on the government's proposals to revise TUPE concluded in December 2001 and draft Regulations are expected 'in the Spring'.

Meanwhile, litigation on TUPE continues unabated. The cases reported in this issue concerns changes in terms and conditions and dismissals for an economic, technical or organisational (ETO) reason.

The Lutak case concerned a transfer of a contract driving goods for a large chain of chemists. Mr Lutak transferred to the new company on the same terms and conditions, including a right to remain on his existing terms and conditions if redeployed. Mr Lutak had been breaking his journeys for a reason related to his health. His previous employer had condoned this. The chemists and the new employer were not prepared to do so. The new employer decided to find him alternative work and he was offered and accepted a job on new terms and conditions which were less favourable than his previous terms.

The Employment Tribunal found that this change was not transfer related, but gave no reason why.

The Employment Appeal Tribunal said that the new employers could have chosen to dismiss Mr Lutak and offer him new employment, but they chose not to do so. Mr Lutak remained employed following the transfer on the same terms, including the right to redeployment on existing terms.

The EAT said that it was not sufficient for the Tribunal simply to state that the change was not transfer-related without saying why, nor to say that Mr Lutak could have been dismissed for a reason which was not transfer-related and therefore the change in terms was not transfer-related. The case was remitted to a different ET to decide.

The issue of whether the transfer was the reason for a change in contract was a central feature of Ralton v Havering FE College. In this case, the employees worked on fixed term contracts which incorporated collective agreements. Some time after the transfer, shortly before their contracts expired, they agreed new permanent contracts which did not incorporate the collective agreements.

The EAT said that the test was whether the changes were motivated 'solely' by the transfer. If not, they were permissible. Changes are permitted where the transfer is simply 'the occasion' for the change, not the reason for it. This approach will make it very difficult for employees to prove that changes are unlawful because they are by reason of the transfer.

The EAT also rejected the argument that because the collective agreement transferred under the Acquired Rights Directive, the Directive required the employers to continue to employ the employees under the collective agreement even after the termination of the individual contracts which incorporate those terms. There was no obligation to do so prior to the transfer and the employees did not acquire such a right because there was a transfer. The new employer was under no greater obligation in this respect than the old employer.

Thompson v SCS Consulting is an example of the EAT taking a broad view of when an employer can justify a dismissal as for an 'economic, technical or organisational' (ETO) reason.

The transferor company was insolvent. A receiver was appointed. There were discussions on the proposed transfer of the business. The proposed transferee identified which employees it wanted to take on. On the day of the proposed transfer, the unwanted employees were dismissed at the request of the purchasers. The transfer took place later that day.

The connection with the transfer could not be clearer, however the Employment Tribunal found that the dismissal was for an ETO reason, was not automatically unfair and therefore liability did not transfer to the purchaser. This was upheld by the EAT.

The EAT said that Tribunals must consider whether the reason or principal reason for dismissal is the transfer or an ETO reason. In considering whether it is for an ETO reason the Tribunal must consider whether it was connected with the future conduct of the business as a going concern. The Tribunal was entitled to take into account any collusion between transferor and transferee and whether the transferor had any funds to carry on the business at the date of the decision to dismiss.

The EAT concluded that it was open to the Tribunal to decide that the business could not have survived and that the only way that it could continue as a going concern was to cut the workforce. The Tribunal had found there was no collusion. All of the employees would have been dismissed if no purchaser was found.

The case contains interesting guidance on the proper approach to the issue of whether there is an ETO reason. It also leads to the conclusion that in the majority of cases the purchaser of an insolvent business will be able to establish an ETO reason for dismissing staff. In view of this, the proposed changes to TUPE relating to insolvent transfers seem unnecessary. They would provide for non-transfer of pre-transfer debts and the ability to agree cuts in terms and conditions. This would unnecessarily diminish protection which is already weak.

The EAT said that as the dismissal was for an ETO reason, any liability for unfairness of a pre-transfer dismissal (even only a few hours before) would not transfer to the transferee. The issue of transfer of liability in a different context was considered by the EAT in Scotland in TGWU v James McKinnon Junior (Haulage) Limited.

The liability in question was for a failure to consult with the union prior to a transfer. The EAT disagreed with an earlier decision of its English counterpart, Kerry Foods v Creber (reported in LELR 42, January 2000). The EAT in the TGWU case took the view that liability for a failure to consult did not transfer because it was not 'liability under or in connection with any contract of employment'. The EAT also took a policy view that it was better for liability to stay with the old employer because it was that employer who failed to consult and the best way to encourage compliance was to ensure that liability stayed with the employer who was under the obligation to consult. However, this overlooks the fact that the same could be said of inflicting personal injury or discrimination, where in both cases liability does transfer.

The decision does not, however, deal adequately with the argument that the failure to consult may be something 'done before the transfer...in respect of a person employed in the undertaking' and therefore treated under Regulation 5(2)(b) as done by the new employer. This does raise difficult issues on whether a failure to consult amounts to something 'done' by the old employer, but the issue was not addressed by the EAT in this case.