Any change to an employee’s terms and conditions will be void (even if the employees agree it) if the reason for the change was the TUPE transfer.
However, a change may be valid if the transferee can show that the sole or principle reason for the change is an Economic, Technical or Organisational’ (ETO) reason that entails changes in the workforce.
An ETO reason will avoid the change being automatically void under TUPE, but it may still be a fundamental breach of contract if it is not agreed by the employee. The importance of this is that the employee can resign and claim constructive dismissal if their contract is breached in this way.
An ETO reason cannot be used to purely justify a reduction in labour costs or harmonisation of terms and conditions with the transferee’s workforce.
ETO Reasons – Economic / Organisational
BIS Guidance on TUPE 2006 suggests that an ‘economic’ reason might encompass a reason relating to the profitability or market performance of the transferee’s business. This might cover the need to reduce working hours but note that it cannot be purely about reduction in labour costs.
‘Organisational’ is said to include reasons that relate to the management of the transferee’s business. This would engage if there is a wholesale restructure of how the service is provided.
To ‘entail changes to the workforce’ the change has to involve a change to workforce numbers or job functions, and this must be the objective in making the change and not just a consequence of it.
In practice this has been narrowly construed with the consequence that it will generally only be in circumstances where the affected individuals would be redundant, but for the agreed changes to the contract of employment, that such changes will be valid.
If employees don’t accept the change they will be due statutory redundancy payments and notice pay.
If a change is not for an ETO reason entailing changes in the workforce employees will be able to claim unfair dismissal and recover both a basic award equal to the statutory redundancy pay and up to a year’s gross pay each.