Changing terms and TUPE
One of the continuing debates about when you can and can’t change terms and conditions following a TUPE transfer is whether the restriction applies only to changes with a negative impact on the employee or whether it also covers beneficial changes. I’m very literal minded so I’ve always just looked at the Regulations themselves which say (Reg 4(4) TUPE)
‘any purported variation of a contract of employment that is, or will be, transferred by paragraph (1), is void if the sole or principal reason for the variation is the transfer’.
I think that’s pretty clear (as these things go). It covers any variation in contract, whether that is a pay cut or a pay increase.
It isn’t quite that straightforward. The Government’s guidance on TUPE (page 21) says that ‘Changes to terms and conditions agreed by the parties which are entirely positive are not prevented by the Regulations’. This is because, the guidance says, the purpose of the Regulations is to ensure that employees are not penalised when a transfer takes place. This is only guidance of course and is not legally binding.
Indeed this part of the guidance was explicitly rejected in the recent EAT decision of Ferguson v Asset Management Ltd. In that case some senior employees whose business was about to be transferred awarded themselves hefty bonuses that would be payable after the transfer. The new employer refused to honour the new terms (and indeed dismissed the employees concerned for gross misconduct). When the case reached the EAT it was held that the purported variation had no effect. Regulation 4(4) covered improvements in terms and conditions as well as any erosion of them.
This involved the EAT taking a different view from the Court of Appeal in Regent Security Services Ltd v Power which held that the new employer was bound by an agreement to increase the employee’s contractual retirement age. That case of course belongs to a time when normal retirement age determined whether or not an employee had the right to claim unfair dismissal – and it was also before the new version of the Transfer Regulations was introduced in 2006 which contained the express prohibition on variation of contract. At that time the extent to which TUPE allowed the parties to agree a variation was governed by case law and was therefore subject to interpretation. Once TUPE 2006 set the provision in stone, I think it was clear that both positive and negative changes to the contract were covered. I think the guidance is wrong and Ferguson is right.
The situation is not ideal however. Suppose a new employer persuades an employee to accept a TUPE transfer by offering them enhanced terms and conditions. Can it really be right that it could then renege on the deal and rely on Reg4(4) to say that it was never bound by the change? It is worth noting that in both Power and Ferguson the courts interpreted TUPE so that the good guys would win. In Power the employer was trying to sack an employee before the retirement age that they themselves had agreed with him after the transfer. To argue that they were not bound by that agreement because of TUPE was pretty shabby. In Ferguson on the other hand, the employees who were aggrieved that their business had lost a lucrative contract, sought to saddle the new employer with a bonus scheme with no commercial justification. In doing so they fell foul of one of the golden rules of employment law: ‘don’t take the Mickey’. So while I stand by my view that Ferguson is rightly decided, I wouldn’t underestimate the ability of the courts to come up with a way of preventing an employer from taking unfair advantage of the fact.