www.xperthr.co.uk© Reed Business Informationwww.xperthr.co.uk© Reed Business Information

How to comply with the law on dismissal of employees in relation to TUPE transfers

Legislation provides that any dismissals that are due to the transfer of an undertaking or, except for certain prescribed reasons, are for a reason connected with the transfer, will be automatically unfair, and prescribes which employer will be liable. It is important that organisations understand where liability rests, not least so that, if desired, they can come to a private agreement to apportion any liability between them.

This XpertHR “how to” guide sets out the legal considerations that both the transferor and the transferee should take into account when dismissals are proposed in the context of a transfer and addresses some practical scenarios that may arise.

The guide covers: Introduction Information and consultation under TUPE Automatic unfair dismissal and TUPE Which employer has liability? Negotiating the appropriate indemnities Identifying the reason for dismissal The rules on general fairness still apply Collective redundancy consultation Pre-transfer dismissals by the transferor Post-transfer dismissals by the transferee Post-transfer dismissals by the transferor Dismissals that are unconnected to the transfer

About XpertHR

XpertHR is the UK’s leading online resource for employment law, HR good practice and benchmarking, bringing together everything HR professionals need to stay compliant with legislation changes, operate cost-effectively and maintain a competitive edge.

To access more articles like this visit www.xperthr.co.uk and register for a free trial.

www.xperthr.co.uk© Reed Business Informationwww.xperthr.co.uk© Reed Business Information

How to comply with the law on dismissal of employees in relation to TUPE transfers

IntroductionWhen an undertaking transfers from one organisation to another, usually due to the sale of a business, an insourcing or outsourcing, or a change in the provider of a service, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) (TUPE Regulations) may be engaged. Where engaged, the Regulations provide that any employees assigned to the undertaking should transfer from the organisation losing the work (the transferor) to the organisation gaining the work (the transferee) with their terms and conditions of employment intact and with full continuity of employment.

There are a number of reasons why an organisation might wish to dismiss employees in the context of a transfer. For example, the transferor may wish to dismiss employees to cut costs to make its business or contract more attractive to a purchaser or incoming provider, or because the disposal of part of its business means that it no longer requires so many employees elsewhere in its business. For its part, the transferee may end up with too many employees following the transfer and wish to dismiss some of them. This scenario is particularly likely where the transferee has a more efficient way of carrying out the work than the transferor.

To protect employees from being dismissed unfairly in the circumstances surrounding a transfer, the Regulations provide that any dismissals that are due to the transfer or, except for certain prescribed reasons, are for a reason connected with the transfer, will be automatically unfair.

Depending on when and for what reason any dismissals are effected in the context of a transfer, the Regulations prescribe which employer will be liable for any claims for unfair dismissal. It is important that organisations understand where liability rests, not least so that, if desired, they can come to a private agreement to apportion any liability between them.

A TUPE-related dismissal will often amount to a redundancy, in which case the employer must carry out a fair redundancy procedure, in addition to complying with its duties under the TUPE Regulations.

This guide sets out the legal considerations that both the transferor and the transferee should take into account when dismissals are proposed in the context of a transfer and addresses some practical scenarios that may arise.

Information and consultation under TUPEIn order for both the transferor and the transferee to understand what their obligations towards employees are as a result of a relevant transfer and to decide whether or not any dismissals will be necessary, the TUPE Regulations require them to communicate with each other. The Regulations also require both the transferor and the transferee to inform and, in some cases, consult with their own employees about the transfer and the effects that it will have on their employment.

The basic process is that:

n the transferor should provide the transferee with details of all transferring staff prior to the intended transfer date;

n the transferee should advise the transferor whether or not it envisages taking any measures in connection with the transfer in relation to the employees who will be transferring, for example making any dismissals following the transfer;

n the transferor should inform its employees’ representatives about the transfer and, in particular, about any measures that the transferee envisages taking in relation to the transferring employees post-transfer;

n the transferor should consult representatives of its affected employees if it envisages taking measures in relation to the employees; and

www.xperthr.co.uk© Reed Business Information

n the transferee should inform representatives of its own affected employees about the transfer and, if it envisages taking measures in relation to those employees, consult the representatives about them.

The appropriate employee representatives for TUPE consultation will be either union representatives or, if there is no recognised union in respect of the affected employees, elected employee representatives (see How to arrange the election of employee representatives for informing and consulting on a TUPE transfer). “Affected employees” includes all employees who may be affected by the transfer or measures taken in connection with it, not only those employees who will transfer. For example, it could include employees of the transferor who may be affected by a loss of work resulting from the transfer.

There is no specified minimum period over which the information and consultation process must be carried out, but reg.13(2) of the TUPE Regulations states that the employer must provide the required information to employee representatives “long enough before a relevant transfer to enable the employer of any affected employees to consult the appropriate representatives”.

A failure on the part of either employer to inform and consult as required under TUPE can give rise to a protective award of up to 13 weeks’ pay per affected employee.

Automatic unfair dismissal and TUPERegulation 7(1) of the TUPE Regulations provides that any dismissal of an employee with the relevant length of service will be automatically unfair where the reason for the dismissal is either:

n the transfer itself; orn a reason connected with the transfer that is not an economic, technical or organisational

reason entailing changes in the workforce (known as an “ETO reason”) (see What is an economic, technical or organisational reason?).

Unlike most claims relating to other automatically unfair reasons for dismissal (for example pregnancy or union membership), which employees can bring from the first day in employment, the usual unfair dismissal length of service requirement applies to claims for automatic unfair dismissal under reg.7(1), ie an employee will need two years’ service if his or her employment began on or after 6 April 2012, or one year’s service if employed prior to 6 April 2012. This is because the purpose of the TUPE legislation is to preserve, not to enhance, employee rights.

In some cases, employees who resign, or refuse to transfer, either in anticipation of or because of a transfer may be treated as having been dismissed for the purposes of the legislation. This will be the case where employees have learnt, usually through the pre-transfer information and consultation process, that there will be a substantial change to their working conditions, to their material detriment, following the transfer (see Employment law manual > TUPE > Transfer of undertakings > An employee’s refusal to transfer).

Which employer has liability?The Regulations determine which employer will have liability for dismissals in the context of a relevant transfer.

In relation to any dismissals made by the transferor prior to the transfer, the reason for the dismissals is very important because it will determine which employer is liable for any claims that result.

In relation to pre-transfer dismissals made by the transferor:

n liability will transfer to the transferee where either: n the reason for the dismissal is the transfer itself; or n the reason is connected with the transfer and is not an ETO reason; andn liability will remain with the transferor where either: n the reason for the dismissal is unconnected to the transfer; or n the reason is connected to the transfer and is an ETO reason (although the transferor

cannot rely on an ETO reason of the transferee).

www.xperthr.co.uk© Reed Business Information

In relation to dismissals effected pre-transfer by the transferee (ie of its own employees at that time), the transferee is liable.

Any dismissals of transferring employees effected after the transfer will be the responsibility of the transferee, which will at that stage be the employees’ employer.

Negotiating the appropriate indemnitiesDespite the clear demarcation of liability set out above, the fact is that whether or not a dismissal is for a reason connected with a transfer, and whether or not it is a valid ETO reason, can be answered only by the employment tribunal. Employees dismissed pre-transfer are therefore likely to hedge their bets and bring claims against both the transferor and transferee. For this reason it is common for the parties to attempt to negotiate appropriate indemnities between them in any sale and purchase agreement or other contract relating to the relevant transfer.

The transferor is likely to seek to the fullest extent possible the transferee’s agreement to be responsible for any costs and expenses, including compensation, relating to any pre-transfer dismissals, particularly where such dismissals have been made to push the transfer through, sometimes at the behest of the transferee. The transferee, on the other hand, may seek to have the transferor agree to bear the liability for any such dismissals, even where they are found to have been connected to the transfer and not for a valid ETO reason. Which party will achieve its objectives in the negotiations over indemnities will depend largely on general commercial considerations. The most common position is for the transferor to agree to accept responsibility for all actions taken in respect of employees up to the date of the transfer and for the transferee to accept responsibility for all actions taken from the date of transfer onwards.

Identifying the reason for dismissalWhen considering a dismissal in the context of a TUPE transfer, the employer should ensure that it can clearly identify the reason for dismissal and should understand the effect of the TUPE Regulations on the fairness of such dismissals.

There is no statutory guidance on the difference between a dismissal that is due to the transfer itself, which will always be automatically unfair, and a dismissal that is for a reason connected with the transfer, which will be automatically unfair only if it is not for an ETO reason. Non-statutory guidance issued by the Department for Business, Innovation and Skills on Employment rights on the transfer of an undertaking (PDF format, 188K) (on the BIS website) suggests that a dismissal is likely to be found to be by reason of the transfer itself only where there are no extenuating circumstances linked to the reason for it.

Most dismissals occurring in the context of a transfer will be dismissals made for a reason connected with the transfer and the employer will be able to avoid a finding of automatic unfair dismissal only if it can show that it had an ETO reason for the dismissal entailing a change in the workforce.

Dismissals for potentially fair reasons that are not ETO reasons, such as capability and misconduct, which would have occurred notwithstanding the transfer, are unlikely to be because of the transfer or for a reason connected with the transfer. Therefore, the usual unfair dismissal rules will apply.

What is an economic, technical or organisational reason?An employer that is considering dismissing an employee where the reason for the dismissal is connected to the transfer must determine whether or not it is an ETO reason. Although there is no definitive answer to this question, an ETO reason is likely to be a reason related to the day-to-day running of the business. The non-statutory guidance issued by BIS states that the term is likely to include:

n a reason relating to profitability or market performance of the business (ie an economic reason);n a reason relating to the nature of equipment or production processes that the employer

operates (ie a technical reason); or

www.xperthr.co.uk© Reed Business Information

n a reason relating to the management or organisational structure of the employer’s business (ie an organisational reason).

For example, if a transferor loses a key customer as a result of a transfer, this could be a possible economic reason; where the transferee has acquired a number of warehouse operatives into a fully mechanised warehouse environment, this could be a possible technical reason; or where the disposal of part of the transferor’s business means that fewer employees are required at line manager level, this could be a possible organisational reason.

What does “entailing changes in the workforce” mean?The existence of an ETO reason is not in itself sufficient to defend claims of automatic unfairness. The employer must also show that the ETO reason “entails changes in the workforce”. This means that, for the ETO defence to work, in addition to the dismissal of the employee for an ETO reason, there should be either:

n a connected reduction in the number of employees in the employer’s workforce; orn a material change in the functions performed by the workforce.Where the employer relies on changes to the functions performed by the workforce, the changes should be more than just minimal changes and should be related to the role held by the employee whose dismissal is in question.

The meaning of “entailing changes in the workforce” is currently under review by the Government. In its Consultation on proposed changes to the TUPE Regulations 2006 (PDF format, 521K) (on the UK Government website), the Government proposed amending the Regulations so that “changes in the workforce” can cover changes in the location of the workforce, to align the definition of an ETO reason with the definition of redundancy under the Employment Rights Act 1996. Currently, redundancy dismissals as a result of a change of workplace, related to the transfer, are not covered by the ETO definition (because a change of workplace does not involve a change in the number of employees or the functions they perform) and are therefore automatically unfair. The Government has said that, if the consultation results support the proposed changes, it will seek to introduce them in October 2013.

Considering whether or not an ETO reason for a dismissal exists is not straightforward, but a good rule of thumb is that if, notwithstanding the transfer, the reason for any dismissal would be likely to amount to redundancy or, for the purposes of making economies or efficiencies, to “some other substantial reason” for dismissal, it will probably amount to an ETO reason in the context of the transfer.

The rules on general fairness still applyWhere, in the context of a transfer, the employer can show that a dismissal was either not because of the transfer or was for a reason related to the transfer that was an ETO reason, it will avoid a finding of automatic unfair dismissal under reg.7(1). However, that is not the end of the matter. The rules of general fairness under s.98(4) of the Employment Rights Act 1996 will still apply to any dismissal and any employer falling short may still find itself facing claims of unfair dismissal.

Typically the reason for an employer dismissing an employee in the context of a transfer will be “redundancy” within the meaning of s.139 of the Employment Rights Act 1996 (ie dismissal because the employer ceases to carry on the business in which the employee was employed or ceases to carry on that business in the place where the employee was employed; or the needs of the business for employees to carry out work of a particular kind have ceased or diminished). When called to decide on the fairness of a dismissal for redundancy, the tribunal will be guided to a large extent by the rules established in Williams and others v Compair Maxam Ltd [1982] IRLR 83 EAT.

In Williams the Employment Appeal Tribunal held that, an employer will not normally act reasonably unless it:

n warns and consults any employees affected or their representatives;n adopts a fair basis on which to select for redundancy; and

www.xperthr.co.uk© Reed Business Information

n takes such steps as may be reasonable to avoid or minimise redundancy by redeployment within its own organisation.

Warning and consulting about possible redundancies should occur in each case or this will almost certainly lead to a finding of unfairness.

For the avoidance of doubt, this general fairness requirement to warn and consult employees about possible dismissals is independent of and in addition to any obligation to inform and consult under reg.13 of TUPE. Employers should also be aware that, depending on the number of dismissals and the reason for those dismissals, the duty to consult on collective redundancies (under s.188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULR(C)A)) may also apply. Although these are separate duties, employers might choose to kill two birds with one stone and run the consultations in parallel (see Pre-transfer consultation of transferring employees).

The employer should carry out consultation on an individual basis with affected employees, regardless of any collective consultation with union or employee representatives (see How to consult on an individual basis during a redundancy exercise).

Collective redundancy consultationAs a starting point, when considering dismissals in the context of a transfer, the employer should establish whether or not the collective redundancy consultation rules set out in s.188 of TULR(C)A apply. These rules apply where an employer proposes to make 20 or more employees redundant within a period of 90 days or less. (While the legislation says that the duty to consult applies where the redundancies are proposed “at one establishment”, the EAT in Usdaw v Ethel Austin Ltd (in administration); Usdaw and another v WW Realisation 1 Ltd and others EAT/0547/12 & EAT/0548/12 said that these words should be disregarded.) If there are 100 or more affected employees, the employer must commence consultation with a recognised trade union or elected employee representatives at least 45 days before the first dismissal takes effect. If 20 or more employees are affected, consultation must commence at least 30 days before the first dismissal takes effect.

The term “redundant” under these rules is wider than the definition under the Employment Rights Act 1996, and applies where dismissal will be for a reason “not connected with the individual worker concerned”. This definition of redundancy will apply to most transfer-related dismissals. There is a list of specified information that the employer must provide to the representatives, including the reasons for the proposed redundancies and the proposed method of selecting employees for redundancy. Consultation should be about ways to avoid or reduce redundancies and any ways in which the effects of redundancy can be mitigated. See Good practice manual > Change management > Informing and consulting during a collective redundancy process for guidance on how to carry out collective redundancy consultation.

If an employer fails to meet its collective redundancy consultation obligations, a tribunal can make a protective award in relation to the relevant employees.

Pre-transfer dismissals by the transferorThe transferor cannot rely on the transferee’s ETO reason to dismiss employees fairly prior to a transfer. For example, if, during the course of pre-transfer discussions, the transferee suggests that it will have too many staff post-transfer (ie an ETO reason entailing changes in the workforce applies) the transferor cannot rely on that reason to effect fair dismissals prior to the transfer. The transferor must have its own ETO reason in order to avoid claims of automatic unfairness.

That being said, where a transferor does dismiss in connection with a transfer and it does not have its own ETO reason, liability in respect of the dismissals, insofar as they relate to employees who would otherwise have transferred, will in any event transfer to the transferee. Nevertheless, the transferor may still be sued by dismissed employees, so, if it is making dismissals prior to the transfer without a valid ETO reason, the transferor should

www.xperthr.co.uk© Reed Business Information

seek to obtain indemnities for any unfair dismissal claims that result, or be prepared to bear the cost.

The better way for the parties to manage dismissals in these circumstances is for the transferee to effect the dismissals after the date of the transfer, relying on its own ETO reason.

Post-transfer dismissals by the transfereeIf, prior to a transfer, the transferee envisages making dismissals following the transfer, it should ensure that it complies with its obligation under reg.13(4) of the TUPE Regulations to inform the transferor of the measures that it intends to take in respect of the transferring employees.

The transferee must also comply with its obligations under TUPE to inform and consult with the appropriate representatives of its own staff about potential dismissals.

Pre-transfer consultation of transferring employeesAlthough there is no requirement under reg.13 for the transferee to consult with the transferor’s employees about post-transfer dismissals (its obligation is just to inform the transferor about the measures it envisages taking), in practice, with the transferor’s consent, the transferee may consider it appropriate to play an active role in any pre-transfer consultation that the transferor has with its employees. This joint approach to consultation will be particularly attractive where the transferee wants to make the first dismissals on or very soon after the date of the transfer.

By carrying out a consultation prior to the transfer the transferee can argue that it satisfied the requirements of general fairness before making any dismissals. By consulting for the prescribed time period prior to the transfer, the transferee may also be able to argue that it has complied with the collective redundancy consultation rules, where these apply. The law about whether or not it is acceptable for pre-transfer consultation to count towards the dismissing employer’s collective consultation obligations under TULR(C)A is uncertain and is currently under review. In its Consultation on proposed changes to the TUPE Regulations 2006 (PDF format, 521K) (on the UK Government website), the Government has proposed to amend the Regulations to ensure that consultation by the transferee with staff who are due to transfer will count for the purpose of the obligation to consult on collective redundancies.

If the transferee decides to go ahead with pre-transfer consultation with employees who are due to transfer, and the transferor agrees to allow access to the employees, the transferee should consider its options with regard to how to carry this out in practice. For example, it should consider whether to hold joint meetings with representatives of its own affected employees and affected employees of the transferor, or whether to conduct consultation with the two groups separately. It could arrange meetings with the appropriate representatives only, or it could invite all affected employees to group meetings. It should liaise with the transferor about holding and publicising meetings on the transferor’s premises.

The transferor’s duty to inform and consult its own employeesWhere the transferee intends to make dismissals post transfer, the transferor, for its part, should ensure that it complies with its obligations under reg.13 of the TUPE Regulations to inform representatives of its own staff prior to the transfer. The information process will involve the transferor passing on information about the dismissals that the transferee has indicated that it envisages making post-transfer. The transferor does not have a duty to consult on measures that the transferee envisages taking.

Selection for redundancyWhere, following a transfer, the transferee’s ETO reason for dismissing employees is redundancy, the principles of general fairness require the transferee to treat both the transferring employees and its own employees equally. Therefore, where redundancies will be made from among a class of employee that consists of existing and transferring employees, the redundancy selection pool should include both groups. Any attempt to favour one group over the other will almost certainly give rise to unfairness.

www.xperthr.co.uk© Reed Business Information

Post-transfer dismissals by the transferorFollowing a relevant transfer, a transferor may need to dismiss staff for an ETO reason connected to the transfer, for example it may need fewer support staff as a result of part of its workforce transferring out of the organisation.

Where the transferor envisages making post-transfer dismissals, it should, before the transfer takes place, comply with its obligations under TUPE to inform and consult with representatives of its employees about these dismissals. If it fails to inform and consult prior to the transfer, although it may have exposed itself to the risk of claims for a protective award, the transferor will be under no obligation under TUPE to consult once the transfer has happened.

That being said, any dismissals will still be subject to the rules of general fairness and, where they apply, to the collective redundancy consultation rules under TULR(C)A. Therefore, before making any dismissals in such a case, although there is no TUPE obligation after the transfer, the transferor will need to undertake the appropriate redundancy consultation to avoid claims for unfair dismissal and, if TULR(C)A applies, for a protective award.

Dismissals that are unconnected to the transferThere will be occasions where the reason for dismissing a transferring employee is not connected with the transfer at all, but is related to the individual him- or herself. For example, the transferee may wish to dismiss transferring employees who are part way through a performance management process or are on long-term sick leave. In such cases, the transferee should abide by the usual rules associated with carrying out a fair dismissal.

It will, of course, be possible for an employee dismissed in such circumstances to argue that his or her dismissal was because of the transfer or for a reason connected with it. However, the question will be a matter of fact for the tribunal and it will be up to the employee to prove the connection.

As a general rule, if there is a potentially fair reason for the dismissal that appears unrelated to the transfer and the employer has a reasonable explanation as to the timing of the dismissal (ie it does not look to have been expedited as a result of the transfer) the dismissal is likely to be found not to have been connected with the transfer.

Dismissals where a disciplinary or capability process is ongoing at the time of the transferIf the transferor is conducting a disciplinary or capability procedure in relation to an employee in the period leading up to the transfer, it should make every effort to complete the procedure prior to the date of the transfer, while ensuring that the procedure remains fair. Where that is not possible and the procedure is ongoing at the time of the transfer, the transferee needs to ensure, as far as possible, that the procedure is unbroken. Any undue delays, lost evidence or unavailable witnesses, for example, could give rise to claims of a flawed procedure and general unfairness.

In the circumstances, the transferee should ensure that it obtains full disclosure of all the necessary evidence prior to the transfer. Also, in relation to any relevant witnesses that will not transfer, it should try to obtain their agreement that they will attend to give evidence at any subsequent hearing. Where that is not possible, the transferee should at least attempt to obtain signed witness statements from them.

Although it is acceptable for a transferee to dismiss entirely on the basis of a procedure carried out by a transferor, because liability for the dismissal would rest solely with the transferee, it would be advisable for the transferee to audit that procedure to ensure that no mistakes were made by the transferor prior to the transfer date.

The belt and braces approach would be for the transferee to insist on an indemnity from the transferor in respect of any such proceedings that are ongoing at the date of the transfer. Whether or not the transferor would be likely to agree to indemnify against a claim the conclusion of which is out of its hands is another matter and will be for negotiation between the parties.

www.xperthr.co.uk© Reed Business Information

More guidance from XpertHR

“How to” guide on:

n avoiding falling foul of the law on harmonising contractual terms and conditions following a TUPE transfer

FAQs on TUPE, including:

n Where a transferee has no need for the employees transferred to it under TUPE, can the selection pool for redundancy include only the transferred employees, or must it also include the transferee’s existing workforce?

n Does an employee need a minimum period of service to bring a claim of unfair dismissal when dismissed by reason of a TUPE transfer?

Line manager briefings on:

n handling TUPE transfers

n individual redundancies

n collective redundancies

Good practice guide on TUPE

Liveflo: see how our revolutionary online HR tool can help you

n Liveflo workflow on conducting an election for employee representatives for TUPE consultation

XpertHR is the most cost-effective online information source for good practice, compliance and benchmarking for HR professionals.

Let us show you how XpertHR can immediately benefit your organisation by requesting a demonstration today.

To access more articles like this visit www.xperthr.co.uk and register for a free trial.