Employer’s Attempt to Harmonise Terms and Conditions Defeated by Re-engagement Order - Court of Appeal Upholds Tribunal Decision

The Court of Appeal has upheld a tribunal decision that two employees dismissed after refusing to agree changes to their terms and conditions following a TUPE transfer had been automatically unfairly dismissed. It also upheld the tribunal’s order that they should be re-engaged on their old salary.

In The Manchester College v Hazel, the claimants TUPE transferred to the College in August 2009. The College needed to make cost and efficiency savings and in January 2010 drew up plans to make 300 redundancies and to change the terms and conditions of the remaining staff. 

Union negotiations followed. Although both claimants were initially at risk of redundancy, neither was made redundant. The College then sought to agree changes to terms and conditions of employment in order to harmonise terms and avoid the need for any further redundancies. The claimants were offered continued employment on new contracts which involved a pay cut. They accepted all the changes apart from the pay cut and were dismissed. However, they were offered and accepted new contracts containing the revised terms, including the pay cut and they continued to work.

The claimants claimed that their dismissals were automatically unfair. The employment tribunal agreed. They had been dismissed for refusing to agree the new terms and this was a reason connected with the TUPE transfer.  The employer could not rely on the defence that the dismissals were for an economic, technical or organisational reason ("the ETO defence") as dismissals as a result of the need to harmonise terms did not entail changes in the numbers or functions of employees, a necessary requirement of the ETO defence.  The fact that other employees had been dismissed for redundancy (which was an ETO reason) did not help, as it was necessary to show that the claimants’ dismissals entailed a change in workforce numbers or functions. 

The tribunal then went on to consider remedy. It decided to order re-engagement of the claimants on their new terms and conditions, but with their salaries restored to their previous higher level and frozen until those who had agreed the changes caught up. 

The Court of Appeal upheld the tribunal decision. It rejected the employer’s argument that the tribunal had been wrong to focus on the immediate reason for dismissal (refusal to accept new terms) and ignore the wider cost-saving plan which involved workforce changes in the form of redundancies. The fact that redundancies and harmonisation were part of a single cost-cutting exercise had no bearing on the question of what was the sole or principal reason for the claimants’ dismissals.   The need for redundancies played no part in the employer’s reasons for giving notice of dismissal to these employees. The only reason for dismissal was the refusal to agree new terms and that did not entail changes in the workforce. 

The Court of Appeal also upheld the re-engagement order. 

Employers seeking to cut costs after a TUPE transfer will often include both redundancies and harmonisation in their plans. This case makes it clear that it is necessary to focus on the reason for dismissing the particular employee in order to determine if the employer can rely on the ETO defence. In this case, the reason for the claimants’ dismissals was their refusal to accept new terms (which did not involve a change in workforce numbers) and not redundancy (which would have) and so the employer’s attempt to rely on the ETO defence failed.

The remedy ordered in this case is of concern to employers seeking to change terms and conditions of employment. Where employees refuse to agree changes, employers will often terminate employment and offer a new employment contract containing the new terms. Whilst employers have always been aware that they may face unfair dismissal claims, even from employees who accept the offer of new employment on revised terms, it has perhaps not occurred to them until recently that re-engagement on their old terms and conditions might be ordered as a remedy.  

In order to mitigate the downside of a re-engagement order on previous terms, employers seeking to make changes to terms and conditions in the context of a TUPE transfer could include a provision in the new contract making it clear that employees will not have the benefit of the new terms if they seek to rely on their original terms and requiring the repayment of any additional benefits which were not provided under the old contract.  In some cases, they might also wish to consider entering into a settlement agreement settling claims arising from the termination of the old contract, which, whilst not entirely without risk, may be effective. 

One piece of good news for the employer in this case was that the employees' salary was frozen until others caught up and so they were not entitled to pay rises in the mean time.