Weekly dilemma: Changing terms after a TUPE transfer

My business has recently acquired some new staff under a TUPE transfer, but they’re on substantially better terms than my existing staff. I don’t want a two-tier workforce so I’d like to harmonise the new employees’ terms and I am even prepared to offer incentives. Where do I stand?

Your problem is not a new one, but that does not mean that there is yet an easy answer. Once we assume that the cost of simply bumping up to parity the terms of your existing staff is prohibitive, you are left without an easy or legally secure option.

Your problem lies with the TUPE legislation, which expressly preserves the incoming employees’ terms of employment with the transferee (you, in this case). That is not to say that those terms are set in stone forever, but TUPE prevents you from making changes to them in connection with the transfer unless those changes are for “economic, technical or organisational reasons entailing changes in the workforce”, which they almost never are.

It had been hoped that the 2014 Amending Regulations to TUPE would make harmonisation of terms possible but the position remains essentially the same. While, the Regulations now allow changes to be made where the employment contract expressly permits the variation, this contractual right is construed narrowly and any changes that are made must not damage the implied duty of trust and confidence. The new provisions also allow changes to collectively agreed terms to be made one year after the transfer, but only where the overall terms are “no less favourable”.

By definition, any “harmonisation” arises from the transfer, so the legal starting point becomes that detrimental changes to your incoming employees’ terms will be invalid under TUPE.

Pushing them through anyway gives the employees the option of either resigning and claiming constructive dismissal or staying in your employment but suing you for the shortfall between your terms and the old ones. That would obviously be intensely irritating and that irritation would be compounded by the knowledge that any consequent dismissal would be deemed to be by reason of the assertion of a statutory right (to the preservation of their terms under TUPE) and, therefore, automatically unfair.

How about the carrot rather than the stick? You have the funds to offer incentives, so why not offer the new staff a lump sum in return for their abandoning the more favourable terms? Surely they would agree?

Indeed they might, but your difficulty then lies in a 1999 case concerning a business bought by Credit Suisse. In exchange for agreeing to some more onerous garden leave and restrictive covenant provisions on transfer, the incoming employee was paid a £625,000 retention payment. Shortly afterwards he left anyway and, in breach of those new covenants, started working with a competitor. On Credit Suisse’s challenge, the new covenants were deemed unenforceable by the High Court since they represented a detrimental change to his TUPE-protected terms. The sting in the tail was that the employee was then not required to repay the £625,000 either: although that was a change to his terms of employment, it was obviously not detrimental and was therefore entirely lawful!

The risk you face in using incentives, therefore, is that the new employees can take those extra benefits and yet still not be bound by the downsides agreed in return. That this agreement may be both voluntary and informed, and the fact that your employee may be at least as well off overall on the new terms is irrelevant.

So, if you cannot incentivise your new staff into agreeing and you cannot dismiss them if they do not, what do you have left? Two alternatives, neither of them enormously attractive.

First, give your new staff contractual notice of termination but accompany it with an offer of continued employment on your new reduced terms to start immediately on the expiry of that notice. This is not without its downsides – the employment relations aspects of giving all your new staff notice of dismissal as soon as they arrive can be significant. This is the case even if it is expressly not with a view to ending the employment relationship that the notice has been given. There also remain some questions as to whether such an obvious device would be effective to sidestep TUPE in any case. Even if it is, if the sole or principal reason for the dismissal is the transfer it will probably be automatically unfair, and the employees may (especially if the discrepancy is material, and even if they take up the new contract and so stay in your employment) feel moved to pursue a tribunal claim for their losses, being the difference between the two packages.

Alternatively, rely on the old employer’s friend, inertia. Although Credit Suisse was obviously badly burnt in 1999, that is very much the exception. In practice, the great majority of staff agreeing to new terms in return for some meaningful incentive will regard themselves as bound by that agreement.

A process of prior explanation and consultation in relation to the proposed change in terms will also serve you well, especially if you are going to give notice. While the dismissal will still be unfair, the process may lead people to understand the need for the change and/or to consider themselves at least to have been fairly handled. That may reduce the number of your new staff who look to the law for some right of recourse.

David Whincup, partner and head of employment, London, Squire Sanders Hammonds

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