TUPE: Can we remove an employee allowance following a transfer?

One of TUPE’s features that habitually creates difficulty is the restriction on the employer’s ability to change terms and conditions of employment by reason of the transfer.

The very circumstances in which a TUPE transfer arises create a climate of change, whether that is a transfer of a business to new ownership or the transfer of responsibility for delivering a service.

Employers may want to ask the transferring staff to accept a harmonisation of terms, bringing the transferees into alignment with their existing staff. They may also want to deploy those employees in a different way as required by the requirements of the enlarged business or the demands of a new contract for service delivery: for example tweaking roles, job descriptions, hours, or introducing multiskilling.

To the extent that the employer seeks to introduce changes to terms and conditions of employment in connection with a transfer, TUPE gives employees a number of rights to push back, enhancing the employees’ rights beyond what would otherwise be the ordinary level of legal protection.

In the event that an employer can persuade an employee to accept a change to terms and conditions of employment, it may be void. In particular, regulation 4(4) provides that a change in terms is void where it is by reason of a transfer and there is no economic technical or organisational (ETO) reason for the change.

It can be very frustrating for employers to find their hands tied in this way and, with TUPE tipped as a potential area for change post-Brexit, there has been speculation that the government might take the opportunity to loosen restrictions in this area. However, change now seems unlikely at least in the short to medium term.

Against that background, a decision upholding the removal of an “outdated and unjustified” contractual allowance might be seen as one that got away. In the recent judgment of the Employment Appeal Tribunal in Tabberer v Mears Limited such a change was held not to be contrary to TUPE.

The employees in question had been employed as electricians by Birmingham City Council. They were entitled to a 60-year-old allowance, the ETTA (Electricians Travel Time Allowance), which had been introduced because the electricians were losing out on a productivity bonus because they had to travel between the 30–40 depots which were in operation.

With the effluxion of time and transfers of employer, the circumstances of their current employment meant that the allowance had no continuing rationale. The reasons giving rise to the allowance had ceased to exist (there was now only one depot and in any event, productivity bonuses had been phased out) and it was argued that the allowance was “outdated and unjustified”.

So, when following a number of earlier transfers, a new employer sought to remove the allowance following a TUPE transfer, the electricians argued that the variation to their contract was void under regulation 4(4) of TUPE.

Not so, said the Employment Tribunal and the EAT held that they were entitled to reach that conclusion.

The transfer was not the reason for the removal of the allowance; it was because it was outdated. They applied a causal test — what is it that caused the employer to act as it did? A transfer, or merely the desire to tidy up the terms and to remove outdated elements? 

The headlines in reports of this case can be misleading and this decision certainly does not drive a coach and horses through the general prohibition on changing terms by reason of a transfer.

The allowance ceased to be payable after a TUPE transfer in 2008 and the TUPE argument was one aspect of a battle surrounding pay. Nevertheless, there are some lessons to be learned.

Firstly, employers are inevitably nervous around seeking to make changes to terms and conditions around the time of a TUPE transfer, because the two will readily be seen to be linked. However, where there is a distinct reason for the change which is not the transfer, there is no reason to hold back.

To fall within the restrictions within TUPE, the transfer must be the “sole or principal reason” for the change. It is always possible that this will be a close call.

Why in this case did the employer consider whether the allowance was out of date? Surely it was the transfer that gave rise to this?

It was material in this case that the employer’s consideration of the review of this allowance was found to predate the transfer. The key in such circumstances is to find and articulate a reason for making changes that is separate from the transfer itself.

Otherwise, a consideration of whether there is an ETO reason is necessary, which gives a range of options for justifying a legal change. Importantly, for such a reason to apply, there must also be an impact on the workforce (for example, a change in location, the number of employees or the functions they perform).