Can a failure to harmonise contractual terms following a TUPE transfer amount to discrimination?

The legal bit 

Regulation 4 of the Transfer of Undertakings Protection of Employment Regulations 2006 ("TUPE") provides that all rights, powers, duties and liabilities under or in connection with the employee’s contract transfer to the transferee.This includes contractual pay and benefits.

Any variation of the employment contract is void if:

• the sole or principal reason for the variation is the transfer itself, or
• the reason is connected with the transfer and is not an economic, technical or organisational (ETO) reason entailing a change in the workforce.

Section 19 of the Equality 2010 Act provides that

A person (A) discriminates against another (B), if A applies to B a provision, criterion or practice (PCP) which is discriminatory in relation to a relevant protected characteristic of B's. A PCP is discriminatory if: 

• A applies, or would apply, it to persons with whom B does not share the characteristic,
• it puts, or would put, persons with whom B shares the characteristic at a particular disadvantage when compared with persons with whom B does not share it;
• it puts, or would put, B at that disadvantage, and
• A cannot show it to be a proportionate means of achieving a legitimate aim.

The facts

The claimants, Mr Alpha Anne and 79 others, worked as cleaners at Great Ormond Street Hospital (GOSH). For a number of years, they were employed by Outsourced Client Solutions (“OCS”) which had a contract with the Great Ormond Street Hospital for Children NHS Foundation Trust (“the Trust”) for the cleaning of GOSH. 

On 1 August 2021, the contract came to an end and the provision of cleaning services at GOSH was taken in-house. This was a TUPE transfer. The claimants, along with a number of other employees of OCS, were transferred to the employment of the Trust.

The claimants, who are a group of black and minority ethnic (“BAME”) individuals, claimed that they had been indirectly discriminated against by the Trust on race grounds from 1 August 2016 until the date of the claim in that:

1. pre-transfer, there was a failure by the Trust to require OCS to offer its employees Agenda for Change (AfC) pay rates and other AfC terms, including contractual sick pay, annual leave, overtime and access to the NHS Pension Scheme;
2. post-transfer, there was a failure by the Trust to directly offer AfC rates from 1 August 2021.

AfC is a collective agreement governing terms and conditions of employment for the majority of NHS staff. 

The Employment Tribunal (ET)

The claimants alleged that pre-transfer they were contract workers and that post-transfer they were direct employees of the Trust. They contended that the Trust applied a provision, criterion or practice (“PCP”) to them which was discriminatory in relation to their race.

Their claims were dismissed by the Employment Tribunal, relying heavily on the Employment Appeal Tribunal’s decision on similar facts in Royal Parks Ltd v Boohene. When that case later went up to the Court of Appeal, it was established that the Equality Act does not allow employees of a contractor to complain to the client organisation about pay difference between themselves and the client’s staff which validated the tribunal’s conclusion in Anne that the pre-transfer claims could not succeed.

The Employment Tribunal in Anne also held that, on the evidence presented, it could not be established that the Trust had applied a provision, criterion or practice (“PCP”) to the claimants post-transfer.

The Employment Appeal Tribunal (EAT)

The Claimants appealed to the EAT, which held that:

1. the Employment Tribunal had been correct in finding that the pre-transfer claim failed because it could not depart from the Court of Appeal’s decision in Royal Parks Ltd v Boohene
2. in relation to the post-transfer period, the EAT overturned the Employment Tribunal’s decision and upheld the claimants’ indirect race discrimination claims on the basis that the Trust had applied a provision, criterion or practice (PCP) from the date of the transfer, namely continuing the claimants’ employment under the terms and conditions of their employment with OCS
3. the PCP resulted indirect race discrimination as it placed the claimants at a particular disadvantage when compared with other Trust employees who were engaged on AfC terms and conditions of employment
4. the Trust argued that it could not vary the OCS terms and conditions of employment because TUPE provisions prohibit the variation of such transferred terms and conditions. However, in this case the claimants’ OCS contracts of employment included a clause allowing the contractual terms and conditions to be varied. Therefore, the Trust’s objective justification argument failed.

Summary

This case underlines the importance of considering pay disparities in terms and conditions of current employees with that of those that are transferring in.

Organisations will need to undertake an audit of the protected characteristics of the different groups of employees to determine if any groups of employees with a protected characteristic are disadvantaged.  If so, the pay disparity should be resolved as soon as the transfer takes place unless not doing so can be justified as a proportionate means of achieving a legitimate aim.