The claimants had worked for their employer for 2 years before being transferred to the respondent. Before the transfer they were working fewer hours per week than a full timer, but were paid at the full time rate. There was a transfer of undertakings in 2007 and in 2010 it was noticed that the claimants were being paid at the full time rate. The respondent came to the conclusion that the claimants had been overpaid in error and sought to reduce their pay according to standard practice. The claimants agreed reluctantly that their contracts should be changed to take into account the fact that they worked part time. The claimants then brought claims in the ET, claiming that the variations in their pay had been affected by consent, albeit reluctant, but that the variations were void because they were for a reason connected with a relevant TUPE transfer. The respondent contended that there was an independent reason for the variation, ie that they should be paid pro rata because they worked part time. The EJ agreed with the respondent, finding that the real reason for the variation was the respondent's belief that the claimants had been mistakenly paid at the full time rate and that as a consequence they were out of step with the rest of the sector. The judge found that the agreed variations were not made void by their connection with the TUPE transfer nearly 3 years earlier. The claimants appealed.

The EAT upheld the Employment Tribunal's decision, saying that the real issue here was 'what was in the mind of the respondent and why did they decide to vary the contracts?' There was doubt that the reason was because the claimants only deserved to be paid pro rata according to their hours and not because the respondent was trying to achieve harmonisation of all employee's salaries.

___________________

Appeal No. UKEAT/0128/11/ZT

EMPLOYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 5 September 2011

Before

HIS HONOUR JUDGE McMULLEN QC (SITTING ALONE)

(1) MRS C SMITH; (2) MR C BAILEY; (3) MISS K CORLEY; (4) MRS J CALLARD (APPELLANTS)

TRUSTEES OF BROOKLANDS COLLEGE (RESPONDENT)

Transcript of Proceedings

JUDGMENT

For the Appellants
MS CATHERINE O'DONNELL (of Counsel)

Instructed by:
Association of Teachers & Lecturers Legal Services Dept
7 Northumberland Street
London
WC2N 5RD

For the Respondent
MS NADIA MOTRAGHI (of Counsel)

Instructed by:
Eversheds LLP Solicitors
1 Wood Street
London
EC2V 7WS

TRANSFER OF UNDERTAKINGS – Varying terms of employment

The Employment Judge was entitled to hold that the agreed variation of the Claimants' salary was not for a reason connected with a relevant TUPE transfer more than two years earlier and was not in order to achieve harmonisation of all employees' salaries.

1. This case is about unlawful deduction said to have been affected pursuant to the failure to observe the principles set out in Transfer of Undertakings (Protection of Employment) Regulations (TUPE) 2006. I will refer to the parties as the Claimants and the Respondent.

1. It is an appeal by the four Claimants in those proceedings against the Judgment of Employment Judge Livesey, sitting alone, given with corrected reasons on 3 June 2011. The Claimants and the Respondent have been throughout represented respectively by Ms Catherine O'Donnell and Ms Nadia Motraghi, of counsel.

1. The Claimants claim that variations in their pay had been affected by consent, albeit reluctant, but that the variations were void for they were for a reason connected with a relevant TUPE transfer and therefore void. The Respondent contended there was an independent reason for the variation.

1. The issue before the Judge now live was this:

"3.13 Were the changes ones to which regulation 4(4) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 applied. ... Was the sole or principal reason for the variation the transfer or a reason connected with it; ... Alternatively, was the change unconnected with the transfer...."

1. The vehicle was a claim under s.13 for unauthorised deductions, but the statutory base is TUPE 2006. The Judge dismissed the claim. The Claimants appeal. Directions sending this to a full hearing were given by Underhill P who thought the point was "arguable".

1. The relevant provisions of the legislation and indeed of the authorities are not in dispute. TUPE 2006 provides as follows:

"4(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."

1. This in itself derives from Council Directive 2001/23, which is for the safeguarding of employees' rights in the event of transfers of undertakings; Article 3 provides as follows:

"1. The transferor's rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer shall, by reason of such transfer, be transferred to the transferee.

Member States may provide that, after the date of transfer, the transferor and the transferee shall be jointly and severally liable in respect of obligations which arose before the date of transfer from a contract of employment or an employment relationship existing on the date of the transfer."

1. The Claimants were employed at Spelthorne College, which is a sixth form college concentrating on offering A Level education and other vocational work. They started work at various stages after 2005 as TLAs, which is a Teaching and Learning Assistant. None of them worked for 52 weeks of the year. They worked 83% of the weeks of the year - that is, 43 out of 52 - and so the salary which was to be paid to them was divided accordingly. The salary effectively treated them as having been employed on a full time contract which was deemed to be a 36 hour week, whereas they worked respectively 25 or 22 hours a week.

1. There was a dispute about the way in which they came to be paid that, because that is not in accordance with their trade union's guidance (the Association of Teachers and Lecturers) about the payment of such persons. Put simply, if you are a part time worker you get a pro rated salary as compared with a full time worker, and that applies when you are part time as to the number of weeks in a year and also as to the number of hours you work in a week.

1. The pay of the four TLAs at Spelthorne was based upon a comparator of a full time worker on 25 hours and not on 36 hours. This was unusual; it did not correspond to anywhere else in the education sector. Nevertheless, it was not a mistake. A dispute was resolved by the Employment Judge against the Respondent to the effect that Spelthorne and the Claimants had their eyes open when they reached an agreement that they would be paid the rate they were. So, cast in terms of s.13 of the Employment Rights Act,** which provides the protection against unauthorised deductions, the rate of pay properly payable to them was based upon a figure which had been agreed between them. It may well be the Claimants did not fully understand the impact of this unusual agreement but that was the agreement.

1. Spelthorne was transferred to Brooklands in August 2007 so that there was a transfer to which TUPE 2006 of the Claimants' contracts from that time. At Brooklands (both of these are in far west London) there were people engaged who are called LSUs. In due course Ms Hopkins the HR Director of the now merged colleges, began to look at the rates of pay of the indigenous LSUs and came across the rates of pay paid to the four ex Spelthorne staff. She thought there had been a mistake. She had looked at the rates of pay that ought to be paid for full time workers and came to the conclusion that the Spelthorne Claimants had been overpaid in error. There had been no reduction in their pay to take account of the fact that they worked not the conventional 36 full time hours but 25. Acting on that basis she took steps which eventually enured into an agreement with the Claimants that on 1 January 2010 their rates of pay should be reduced in a phased introduction.

1. There is no dispute that the Claimants agreed to this. They plainly objected, sought hard to reason with the Respondent, but nevertheless agreement was forthcoming and their contracts were varied lawfully on that date. The lawfulness however depends upon the relationship between the decision and the TUPE transfer. The Judge was presented with the straightforward options, which were that the transfer from Spelthorne to Brooklands was the reason or principal reason or connected with it on the one hand (the Claimants' case), and on the other, that this was an independent decision reached by Brooklands following what Ms Hopkins had unearthed and the material around the sector.

1. The Judge decided in favour of the Respondent's argument on that. He accepted that Ms Hopkins had given her evidence, which was clear, honest and frank. Her evidence was the vehicle for the presentation of some 13 factors supporting her decision, which were set out in Ms Motraghi's written arguments before the Judge, and that was the reason. In a sense, there was a background which emerged as a result of the transfer but the Judge found in clear terms that it was Ms Hopkins' decision unconnected with the transfer. Put simply, she 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. Whether she would have done it with her own staff had she discovered this or not does not really matter because the evidence presented to the Judge was that this method of payment was out of step.

1. 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 a 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.

1. The Judge addressed himself to the authorities, including London Metropolitan University v Sackur [2006] UKEAT/0286/06 which deals with the passage of time between a transfer and an action. That was a Judgment I gave on behalf of the EAT and which, reassuringly, both counsel rely on as stating the law correctly. There is no period of time, but the variation is less likely to be connected with a transfer the longer after the transfer it occurs; that was a factor. The Judge said this:

"I also bear in mind the fact the sole or principal reason test within regulation 4(4) is a high test and much higher of course than the motivation tests in discrimination law. The test in the subparagraph (b) is somewhat lower however and the Respondent has not sought to put forward any economic, technical or organisational reason in reliance upon the second limb of subparagraph (b)."

1. That is a statement of the law with which, again, both counsel helpfully agree.

1. On behalf of the Claimants, Ms O'Donnell contends that the assessment of the factual circumstances of the case is one for the Judge. The circumstances objectively must include, for example, the proximity in time between the transfer and Ms Hopkins' focus of attention and the fact that she thought there was a mistake. While accepting there was no argument about perversity, Ms O'Donnell contends that the variations here were for a reason connected with the transfer.

1. On behalf of the Respondent, Ms Motraghi says that the decision made by the Judge was one of fact. Placed in a position to determine between two factual alternatives as to the reason in Ms Hopkins' mind, the Judge had evidence before him upon which he could decide as a matter of fact the statutory question. Oral evidence was presented by Ms Hopkins which the Judge accepted; so was documentary evidence, which she presented to him.

1. Ms Motraghi contends that the Respondent should not be forever hamstrung from making changes in the contracts of employment. Provided such could be done had there never been a transfer, this is a case where the sole reason for the variation was unconnected with the transfer. As to the criticism by Ms O'Donnell that the Judge had wrongly isolated the belief of Ms Hopkins in the mistake, Ms Motraghi contends that, in the absence of a perversity challenge and given the acceptance of evidence by the Judge about Ms Hopkins' frankness, this case cannot be made.

1. The legal principles to be applied in this case as I have indicated are not in dispute. In London Metropolitan University giving the Judgment of the EAT I said the following:

"22. We reject the contention that the tribunal has ignored relevant evidence. Its findings are a detailed exegesis of the circumstances from which these dismissals arose. The tribunal knew exactly what it was to determine: whether there was a connection; and if the connection was the principal reason between the dismissal and the transfer. The tribunal held that the reason was harmonisation.

23. We reject the submission that the harmonisation is not related to the transfer. Again that is a matter of fact for a tribunal to establish and it has done here. The chronology is telling. From the outset, notwithstanding the blip of the Vice Chancellors' representation, the intention was to place all of the academic staff on UNL terms. Thus when it was actually implemented two years later it did not in any way lose its connection or its relationship to the merger. In our judgment the tribunal was entitled to make that finding and it did so for reasons which are cogent see paragraph 20.2 of its reasons.

24. This kind of appeal truly does raise a question of fact and in our view there is no question of law associated with it. The tribunal criticises the material which was put before it by the Respondent in that no other decision maker was a witness and there was a distinct absence of relevant minutes. On that basis it had to make findings and draw influences from its primary findings and the inferences which it draws were entirely permissible."

1. In that case the finding by the Tribunal was that the reason for the variation was harmonisation. The start of this jurisdiction is the Judgment of the European Court of Justice, in what is known as Daddy's Dance Hall [1988] IRLR 315, where the court said this:

"15. It follows that the workers concerned do not have the option to waive the rights conferred on them by the Directive and that it is not permissible to diminish these rights, even with their consent. This interpretation is notwithstanding the fact that, as in the instant case, the worker, to offset disadvantages arising for him from a change in his employment relationship, obtains new advantages so that he is not, overall, left in a worse position than he was before.

[…]

17. The Directive does not aim at setting up a uniform level of protection for the whole of the Community based on common criteria. The benefit of the Directive can, therefore, only be invoked to ensure that the worker concerned is protected in his relations with the second lessee in the same way as he was in his relations with the first lessee, pursuant to the legal provisions of the Member State concerned.

18. Consequently, insofar as national law allows, apart from the assumption of a transfer of undertaking, to alter the employment relationship in a way which is unfavourable to the workers, in particular as regards their protection against dismissal, such alteration is not excluded purely because the undertaking has in the meantime been the subject of a transfer and that as a consequence the agreement has been made with the new proprietor of the undertaking. As the second lessee has been in fact substituted for the first lessee pursuant to Article 3(1) of the Directive in respect of rights and obligations arising from the employment relationship, this relationship may be altered with regard to the second lessee within the same limits as for the first lessee, on the understanding that in no case the transfer of the undertaking itself can constitute the reason for this alternation.

19. For these reasons, the answer to the second question must be that a worker cannot waive the rights conferred upon him by the mandatory provisions of Directive 77/187, even if the disadvantages for him of such a course of action are offset by advantages so that, overall, he is not left in a worse position. Nevertheless, the Directive does not preclude an alteration in the working relationship agreed with the new proprietor of the undertaking insofar as such an alteration is permitted by the applicable national law in cases other than transfers of undertakings."

1. Those principles were followed in a UK context in Wilson v St Helen's Borough Council [1996] IRLR 320, where Mummery J (President, as he then was) of the EAT said this:

"(7) It is also an error on the part of the tribunal to conclude that the affirmation of the contract by the subsequent conduct of the parties avoids the mandatory effect of reg. 5(1), interpreted in accordance with the Daddy's Dance Hall [1988] IRLR 315 decision. The variations in the contract terms, said to have been affirmed by the subsequent conduct of the applicants, relate back to the time of the transfer when the variations were made and accepted by reason of the transfer and were therefore prohibited. What happened subsequently was confirmation by conduct of what had already happened on, and by reason, of the transfer. It is true that there may be cases where an effective variation of the terms of employment does take place subsequently either by express agreement or by agreement inferred from conduct. Whether there is such a variation depends on the facts of each case. The reason for the variation depends on the facts of the case. The law, surprising though it may be to English legal tradition, is clear. If the operative reason for the variation is the transfer of the undertaking, then the variation will be ineffective. In this case there was no evidence before the tribunal that the reason for the variation, which took place at the time of the transfer, was anything other than the transfer itself. The 'economic, technical or organisational reason entailing changes in the workforce' did not alter the fact that the variations took place by reason of the transfer at the time of the transfer. There was no subsequent separate agreement varying the terms of employment after the transfer. The subsequent conduct relied on as affirmation was conduct consistent with variations made at the time of and by reason of the transfer. If, as Daddy's Dance Hall [1988] IRLR 315 holds, there can be no agreement to vary terms and conditions by reason of the transfer, there cannot be any subsequent effective affirmation of that variation. It remains prohibited by the regulations."

1. That aspect of the Judgment was not affected by the Judgment of the House of Lords in the same case, [1998] IRLR 706, where Lord Slynn said this:

"The question as to whether and in what situations, where there has been a transfer and employees have accepted the dismissal, claimed compensation based on it and worked for a long period after the transfer, there can be a valid variation by conduct is not an easy one. I do not accept the argument that the variation is only invalid if it is agreed on or as a part of the transfer itself. 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. If the appeal turned on this question I would find it necessary to refer a question to the European Court under Article 177 of the Treaty both in the case of Mr Meade and in the case of Mr Baxendale. Since in my view the dismissal was effective, so that no question of variations falls to be considered, it is not necessary for your Lordships to decide the matter or to refer a question to the European Court."

1. A similar situation to ours, it might be said, arose before the European Court in Martin v South Bank University [2004] IRLR 74, where workers had been transferred from the NHS to the university sector and were required on their emergence into education to join the educational pension scheme. The European Court said this:

"44. In circumstances such as those in the main proceedings, the alteration of the employment relationship is nevertheless connected to the transfer. It is clear from the file that SBU wished merely to bring the terms upon which it offered early retirement to employees of Redwood College into line with those offered until that time to its other employees and, in such circumstances, an alteration of the employment relationship must be regarded as connected to the transfer. That the situation in the main proceedings is of that type is confirmed by the fact that, immediately after the transfer, SBU offered the employees from Redwood College a contract of employment on its terms, which the applicants nevertheless refused. It should, however, be stated that the mere fact that the applicants had joined the higher education retirement scheme has no bearing on this analysis: that factor concerns their retirement rights per se, which are the subject of the derogations under Article 3(3) of the Directive, and not the terms of early retirement.

45. Since the transfer of undertaking is indeed the reason for the unfavourable alteration of the terms of early retirement offered to the employees of that entity, any consent given by some of those employees to such an alteration is invalid in principle."

1. It will be noted in the above that the change to the pension scheme from one to the other was the sole reason. All of these cases stem from what probably is the first emanation of these principles, in Delabole Slate Ltd v Berriman [1985] IRLR 305 CA, where Browne Wilkinson LJ, dealing with a dismissal case under what was then TUPE **regulation 8, but is for all intents and purposes applicable in our case, said this:

"9. Applying those provisions to the present case, the first question was whether Mr Berriman was constructively dismissed by the company's attempt to impose on him a lower guaranteed wage. The Industrial Tribunal held that he was constructively dismissed and the company did not challenge this finding in the EAT. The next question was whether the company's reason for dismissing Mr Berriman was the transfer of the undertaking to the company or a reason connected with it so as to bring the case within regulation 8(1). The Industrial Tribunal held that it was and that accordingly the dismissal was rendered unfair by regulation 8(1). The next question was whether the case was taken out of the automatic unfairness provided for by regulation 8(1) in that the company's reason or principal reason for dismissing Mr Berriman was an 'economic, technical or organisational reason entailing changes in the workforce'. The Industrial Tribunal held that the company's reason for dismissal was such a reason, but the EAT reversed them on this point holding that, although the reason for dismissal was an economic, technical or organisational reason, such reason did not 'entail changes in the workforce'. Finally, the Industrial Tribunal decided that the dismissal of Mr Berriman was fair within the meaning s57(3). That finding was challenged before the EAT who did not decide the point: there is no respondent's notice raising the point before us."

1. The approach to these questions is essentially one of fact; see Thompson v SCS Consulting Ltd & Ors [2001] IRLR 808 EAT at paragraphs 34, 36 and 37(2) per Mr Recorder Burke QC (as he then was). The approach to what is a reason and the ability to overturn it is regulated by the Judgment of the Court of Appeal in Hounslow London Borough Council v Klusova [2008] ICR 396, where Mummery LJ said the following:

"65. On the issue of 'some other substantial reason' for dismissal, I agree with the appeal tribunal. The employment tribunal erred in law in finding that the council did not genuinely believe that the continued employment of Ms Klusova would contravene statutory restrictions. I am mindful, of course, of the high threshold already mentioned to justify interference on the ground of perversity, even with an inference drawn by an employment tribunal from the primary findings of fact.

66. The employment tribunal singled out two aspects of the evidence when dealing with the issue of genuine belief. The first was the council's failure to notify or consult with Ms Klusova about its concerns on the continued lawfulness of her employment, so that her solicitor could seek the necessary clarification from the Home Office. The second was that the council had considered the guidance in the Code of Practice issued by the Secretary of State.

67. The genuineness or otherwise of the council's relevant belief is a matter of inference from admitted or established primary facts. In my judgment, no inference of an absence of genuine belief could reasonably have been drawn by the tribunal from the two particular facts expressly singled out. At most these facts are evidence of a lack of due regard by the council for the procedure for a dismissal decision which it did not believe applied. They are not, in my judgment, evidence of a lack of genuine belief in the unlawfulness of Ms Klusova's continued employment."

1. With those principles in mind I have come to the opinion that the Judge's decision cannot be interfered with. He saw a fine line between the submissions and a difficult case. Nevertheless he reached a clear conclusion. The first issue is, what was he deciding? In my judgment the decision was his as to what the facts were. The assessment of the facts as against a legal standard falls within Serco Limited (Respondents) v Lawson (Appellant) [2006] UKHL 3 in Lord Hoffman's speech where he asked the question, fact or law? Determining the facts of what occurred is a matter for the Judge; a legal assessment then has to be made under the relevant statute, here regulation 4(4).

1. 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. The mistake was in awarding these Claimants the pay they were on. That was determined against the Respondent; Ms Hopkins was wrong, there was no error, the parties agreed it. But the second sense in which an error arises is that this method of payment does not conform to any other within the sector, where there is to be a diminution in the pay of part time workers according both to the number of weeks they work and the hours in which they work in those weeks. So, in a sense, they were paid in a way which might be described as an error but probably more realistically it was that they were not paid in accordance with standard practice.

1. The Judge cited the issue correctly, cited the regulation correctly and made the findings of fact which were open to him. These included an assessment of the period of time that had elapsed from the transfer to the variation and what was going on in Ms Hopkins' mind. Those are both objective and subjective circumstances. 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, there was no doubt what her reason was. Once those findings were made, a legal assessment has to be made as to whether or not they were connected with the transfer. In my judgement the Judge made the correct decision as a matter of law, that these were not reasons falling within regulation 4(4).

1. Applying the European Court's approach to the Directive in Martin, where the sole reason is what is effectively a wish to harmonise, regulation 4(4), is engaged, but where the sole or principal reason is not connected with the transfer the variation may take effect. The purpose of the regulations is to give effect to the purpose of the Directive. Both of these have as their core, as it is variously put, the safeguarding of employee rights, the protection of employee rights. None of these, however, gives an employee additional rights, and the domestic legal position is correctly summarised by this very case. A variation in the terms and conditions of employment relating to the pay of these part time workers can be effected by an employer by agreement; alternatively by terminating the contract. In this case we need focus only on consensual variation, which was achieved. That respects the workers' rights within the context of the Directive and the regulations. What would avoid that effective agreement is the connection with a TUPE **transfer.

1. 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 condition 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. In my judgment the decision of the Judge was correct. He had citation, of legal authorities presented without dispute by counsel as to matters which he should consider. His judgment as to the legal decision which is unimpeachable.

1. I thank both counsel for their very helpful and succinct submissions to me today. The appeal is dismissed.