A law firm, Morison Bishop, had offices in Glasgow and Edinburgh. Mr Hynd was one of two corporate lawyers working in the Glasgow office.
The Morison Bishop partnership was to be dissolved, with the Glasgow partners establishing a new firm, Bishops, and the Edinburgh partners establishing a new firm, Morisons.
As Bishops did not intend to focus on corporate law, it was made clear that, going forward, it would have a reduced requirement for corporate lawyers. Hynd was made redundant on the date of dissolution of Morison Bishop. The new firms commenced practice the following day.
Hynd claimed unfair dismissal against the former partners of Morison Bishop and Bishops. He claimed that the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) applied (the facts predated the 2006 TUPE Regulations), and that his dismissal was unfair because the transfer or a reason connected to the transfer was the reason or the principal reason for his dismissal.
Morison Bishop argued that the dismissal was a straightforward redundancy dismissal or, alternatively, that the dismissal was for an economic, technical or organisational (ETO) reason entailing changes in the workforce and was fair.
The Court of Session held that the dismissal was automatically unfair. It reasoned that because the dismissal had been carried out pre-transfer by Morison Bishop, it could only be fair if that firm could demonstrate that at the time of the dismissal it had an ETO reason.
As will frequently be the case with TUPE transfers, the ETO reason actually ‘belonged’ to the new firm Bishops, and only arose post-transfer because it was only once the new firm was established that the reduced need for corporate lawyers would come into effect. In other words, Morison Bishop had carried out a pre-transfer dismissal relying on Bishops’ post-transfer ETO reason. The court held that this was not within the ETO exception and the dismissal was unfair.
This decision will have important practical implications for both transferors (ie, outgoing employers) and transferees (ie, incoming employers) because of some uncertainty as to whether the liability for unfair dismissal will rest with the transferor or will transfer under TUPE to the transferee.
Following this case, it would seem advisable for a transferor only to make pre-transfer dismissals in reliance on the transferee’s post-transfer ETO reason if the transferee agrees to indemnify the transferor against any liability.
From a transferee’s perspective, it now seems advisable to make such dismissals post-transfer and not to request the transferor to do so beforehand (unless an indemnity can be obtained from the transferor, which seems highly unlikely).
The upside of such an approach is that if a valid ETO reason exists, liability for unfair dismissal ought to be avoidable if a fair procedure is followed. The downside is that carrying out the dismissals will incur management time and it may also be necessary for the transferee to pool the transferring workforce with its own existing workforce when selecting the redundant employees.
A Court of Session judgment is not technically binding on English and Welsh tribunals, but as it is from the Scottish equivalent of the Court of Appeal it will, most likely, be followed in practice.
Philip Davies is an associate in the European Employment Group of Covington & Burling