Mark Shulman & Rachel Taylor, Cumberland Ellis LLP

Two key recent cases on TUPE transfers and changing terms and conditions of employment highlight the importance of the reasons behind the changes in determining whether or not they are connected with the transfer.

**The law

****The Transfer of Undertakings (Protection of Employment) Regulations 2006** (the "Regulations") state at Regulation 4 that:

"…
4) Subject to regulation 9, in respect of a contract of employment that is, or will be, transferred by paragraph (1), any purported variation of the contract shall be void if the sole or principal reason for the variation is—

(a) the transfer itself; or

(b) a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce."

**A mistaken reason is still a reason

**Practitioners will find that in **[**Smith and Others v Trustees of Brooklands College**]()** [2011] UKEAT/0128/11/ZT, the judgment very helpfully contains an extensive review of case law relating to changes in terms and conditions following a transfer and it is well worth reading for that alone.

The case concerned teaching assistants (the Claimants) at Spelthorne College who worked 83% of the year compared to a full-time equivalent, but were (for historical reasons) paid a full-time equivalent salary for 36 hours work per week rather than pro rata to comparable full time workers who undertook 25 hours a week.

When Spelthorne College transferred to Brooklands College, so too did the teaching assistants' employment. After a time the HR Director noticed the disparity in salaries, both against employees undertaking similar work at Brooklands and, as she saw it, for part-timers across the sector as a whole. Steps were taken which resulted in the Claimants agreeing (albeit reluctantly) to reduced salaries.

As it turned out, there was no 'mistake' in the rates of pay of the four Claimants as their salaries had been expressly agreed.

The Employment Tribunal found that the decision to alter the Claimants' salaries was unconnected with the transfer, and that:

"Put simply, [the HR Director, Ms Hopkins] had looked at the way in which part timers in this sector were paid and these four Claimants were not paid in accordance with that …  Therefore, the Judge found that the real reason for the variation was Ms Hopkins' belief that these four people had been mistakenly paid this rate and that as consequence they were out of step with the rest of the sector. The Judge found that the agreed variations on 1 January 2010, which on this footing were valid and effective, were not made void by their connection with the TUPE transfer in 2007."

The EAT dismissed the appeal by the Claimants, holding that:

"It is common ground that this is not a "but for" jurisdiction; the answer to that is obvious: "but for" the four employees coming within the bailiwick of Ms Hopkins at Brooklands, she would not have sought to reduce their pay. But that is not the test. The question is, what was the reason? What caused her to do it? It was her view that they were overpaid by reason of a mistake ... But the real issue here is what was in her mind and why did she decide to do it? Although she got the premise wrong [i.e., their salaries were not really a mistake], there was no doubt what her reason was."

The EAT went on to point out that:

"The steps taken by the Respondent could have been taken at any stage, irrespective of TUPE, and the authorities which I have cited do not in any way interfere with the Respondent's right to seek variations in the terms and conditions of employment of employees even after a transfer, provided that the transfer or a reason connected with it is not the sole or principal reason."

One particularly interesting feature of this case is the examination of the effect of the passage of time and a reluctance to interpret TUPE as rendering employers 'forever hamstrung from making changes in the contracts of employment' , which appears to recognise  (along with previous authorities) the need for employers to be continue running organisations as effective and profitable businesses. The  EAT's judgment  referred back to its earlier decision in Wilson v St Helen's Borough Council [1996] IRLR 320, and alluded to the fact that the House of Lords judgment in the Wilson case had considered that:

"The variation may still be due to the transfer and for no other reason even if it comes later. However, it seems that there must, or at least may, come a time when the link with the transfer is broken or can be treated as no longer effective."

The steps taken by the Brooklands College could have been taken at any stage, irrespective of TUPE, provided that the transfer or a reason connected with it was not the main reason. The fact that these steps took place after the transfer did not automatically mean that they were connected with it and the mental element involved in the decision by Brooklands was the key factor in assessing the reason for the contractual changes.

**Post-transfer changes may relate to pre-transfer reasons

**A similar point arose in the case of [Enterprise Managed Services Ltd v Mr S C Dance and Others]() [2011] UKEAT/0200/11/DM which concerned a transfer on change of service provider.

An organisation called MHS was in the business of providing building maintenance services to the Ministry of Defence for service personnel accommodation. The services themselves were outsourced to various organisations, and from about October 2008 it held meetings with (as it turns out) the transferor and the transferee regarding necessary increases in productivity and efficiency, with an express possibility of losing contracts if such gains were not achieved.

The transferee (prior to transfer) implemented changes in performance-related pay which did, it appears on the facts, increase productivity.

The transferor made no such changes and in fact lost their contract, and its employees transferred to the transferee, which now had two groups of employees divided by craft: appliance and building engineers.
The transferee then decided to implement the same changes in the terms and conditions of employment of the transferred employees (i.e. performance-related pay) in order, apparently, to bring about the same increases in productivity as had been achieved with the previous group. Some employees resisted the changes and were subsequently dismissed. Those employees claimed unfair dismissal and the key issue was whether those dismissals were "connected with" the transfer.

The Employment Tribunal at first instance was split in its findings, with the majority holding that:

"… the principal reason for the variation of the claimants' terms and conditions of employment was to achieve harmonisation with those of the respondent's existing employees.

Employment Judge Coles, on the other hand, gave the minority view and considered that

"… the principal concern of the respondent was that, if it did not vary the terms and conditions of the building engineers so as to achieve similar productivity and efficiency that had been achieved when the terms and conditions of the appliance engineers had been changed, there was a very serious risk that the contract with MHS would not be renewed … "

The Employment Judge considered that "…the principal reason for the variation was to achieve improved performance and efficiency and thereby properly service and retain the contract with MJS. The fact that this would result in harmonisation with the terms and conditions of existing employees would have been a correspondence of the variation but not the principal reason for it."

The Employment Appeal Tribunal stated that "what needed to be decided here was the reason in the minds of management" (emphasis added) and found that:

"In our judgment there is a straight line linking what occurred in the Respondent's business [when the earlier variations were made] to effect productivity and what occurred in it post-transfer for those who as it happened were inherited from Williams who were not on the productivity scheme … It seems to us that since it is open to an employer to effect productivity changes in accordance with the ordinary law, this does not become unlawful when there has been a relevant transfer if the reason is connected to that drive for productivity changes."

The EAT referred the matter back to a fresh Employment Tribunal to decide on whether the dismissals were in fact connected to the transfer.

The decision is interesting because of the discussion distinguishing between harmonising for the sake of 'tidiness' upon the merger between two different workforces, as opposed to harmonising for other business reasons (in this case increased productivity), which may therefore be unconnected with a transfer though they may follow it chronologically. It was also made plain that the fact the employees were not overall disadvantaged by the amended terms was irrelevant; the wish to change terms and conditions was firmly rooted in the management's experience of changing terms and conditions pre-transfer.

**Conclusion
**It seems clear from both of these cases that if an employer is challenged about changes in terms and conditions post-transfer, Tribunals will look carefully at the employer's motivation for making the changes and that an employer's mistaken belief about the situation can provide a reason for making the changes which is not a reason connected with the transfer.