We review two recent cases in this issue. The first deals with whether, after a service provision change TUPE transfer, a new employer is liable, as a “successor” employer, to be the subject of a re-employment order in respect of a former, unfairly dismissed, employee of the old employer. The second concerns a decision by the GB EAT that a variation by a transferee to employees’ entitlements to outmoded travel allowances was not by reason of a prior TUPE transfer and so was not invalid.

Service provision change and whether a new service provider was a “successor” employer for the purposes of a reinstatement or re-engagement order ⚓︎

In Dafiaghor-Olomu v (1) Community Integrated Care (2) Cornerstone Community Care UKEATS/0001/17/JW the claimant had been unfairly dismissed by the first respondent, Community Integrated Care (“CIC”). At a remedies hearing an employment tribunal declined to make an order for reinstatement or re-engagement, awarding compensation instead. The claimant appealed on the basis a re-employment order should have been made against CIC, or against Cornerstone, in the latter case because Cornerstone was a “successor employer”.

The Claimant had worked for CIC, which is a charity providing care to vulnerable people in residential homes. She was based in Aberdeen. She was dismissed, and an employment tribunal had found that this was unfair. By the time of a preliminary hearing to case manage the remedy issues most of the contracts under which CIC operated in Scotland (including a contract for Aberdeen City Council at a location where the Claimant had worked as the Manager) had transferred to Cornerstone by way of a service provision change TUPE transfer. Cornerstone was joined as a Second Respondent to the proceedings at that stage.

The employment tribunal held that reinstatement/re-engagement of the Claimant was no longer practicable in relation to CIC because CIC no longer had local services in the north-east of Scotland in which to employ the Claimant, having lost its last contract in Scotland. Further, at the date of the remedy hearing the Claimant did not have a valid work visa.  As regards the second Respondent Cornerstone, the tribunal considered that the Claimant was not employed by CIC at the date of the transfer to Cornerstone because of her earlier unconnected dismissal (albeit that it was unfair) and her employment did not transfer to Cornerstone.  Alternatively,  if that were wrong, re-engagement of the Claimant by Cornerstone was not practicable because, through reorganisation, the post of Manager on the contract concerned had been removed and replaced by a new post at a higher grade with increased responsibilities managing more than one care home.

We are not concerned in this summary with the issue of practicability of an order for reinstatement against CIC (in this regard that issue was remitted by the EAT to an employment tribunal for reconsideration), but with the issue whether the joined Respondent Cornerstone, as TUPE transferee, should correctly be the subject of a re-employment order.

The Claimant’s appeal with regard to Cornerstone was that the tribunal failed to recognise that the power to order re-engagement of the Claimant under section 115(1) of the Employment Rights Act 1996 (in Northern Ireland, Articles 147-149 of The Employment Rights (Northern Ireland) Order 1996) included a power to order re-engagement by “the employer or by a successor of the employer”, and it should therefore have found that Cornerstone was a “successor” employer, irrespective of TUPE. A successor employer is defined by section 235(1) of the ERA (in Northern Ireland, Article 2(3) of The Employment Rights (Northern Ireland) Order 1996) for the purposes of section 115 ERA as: “… a person who in consequence of a change occurring (whether by virtue of a sale or other disposition or by operation of law) in the ownership of the undertaking, or of the part of the undertaking, for the purposes of which the employee was employed, has become the owner of the undertaking or part”. The Claimant’s case was that the phrase “change in ownership of an undertaking” in section 235 is to be interpreted as including all situations where TUPE applies, including a service provision change.

The EAT did not agree. It was necessary to consider the drafting history of the ERA provisions. The definition of “successor employer” dates back to the Trade Union and Labour Relations Act 1974, and pre-dates TUPE (first enacted in 1981). “Change in the ownership of the undertaking” in Section 235(1) was not to be interpreted as coextensive with a relevant transfer under TUPE or as including all situations where TUPE applies, including a service provision change. A service provision change can apply where no ownership is transferred or changed. But for the definition of successor employer, held Simler J (P), there must be a change in legal ownership. Here, Aberdeen City Council terminated the service provided by CIC and awarded the service contract to Cornerstone. There was no change in the ownership of the service from CIC to Cornerstone. There was simply a change in contractors, with ownership remaining with Aberdeen City Council. Cornerstone was therefore not a successor employer within the meaning of section 235 of the ERA for the purposes of section 115 of the ERA and could not itself be made the subject of a re-employment order.

Simler J also explained the policy basis for this view as follows:

“[This] is consistent with the purpose of sections 115 and 235 ERA which impose obligations on successor employers to re-employ former employees who may have been dismissed considerably earlier, but limit these onerous obligations to situations where there has been a change in ownership of the undertaking in question. Without that limitation the liability of successor service providers to re-employ employees no longer employed at the time of transfer would be potentially unlimited and difficult to cater for (for example by warranty, indemnities or contract). Where there is a change in ownership of an undertaking (or part of an undertaking) for the purposes of which an employee is employed, then the risk of a dismissed employee of the former employer bringing a claim against the new owner of the employing undertaking can be regulated by contract. In the case of a change in the provider of a service there is generally no contractual relationship between the former provider and the new provider and it is only in the context of TUPE or a change in ownership that liability for employees of the former employer can sensibly be regulated for between these parties”.

Variation to entitlement to outmoded travel allowances was not by reason of a prior TUPE transfer and so not invalid ⚓︎

In Tabberer and others v Mears Ltd UKEAT/0064/17 the claimant employees were electricians originally employed by Birmingham City Council. Since their employment with BCC they had been TUPE’d a number of times, ultimately to Mears Ltd. With BCC they enjoyed terms entitling them to payment of an Electrician’s Time Allowance (ETTA). This had been introduced as long ago as 1956 (well before the claimants had joined BCC and were now anachronistic. The original purpose of the ETTA was to compensate electricians for the loss of a productivity bonus caused by the need to travel to different depots. At that time, BCC had 30 to 40 depots across Birmingham but over the years depots had been closed so that, by the time relevant to these claims, only one remained - at Kings Road. Furthermore, since 2006, electricians had been allocated jobs on handheld computers and used vans to travel to those jobs. Productivity bonuses had also been phased out. Managers had, over the years, questioned the wisdom of these payments, but they had continued to be paid when claimed.

Mears, when it became the employer, queried whether the payments were contractual and declined to pay. In litigation before an employment tribunal and the EAT (in Salt and others v Mears Ltd UKEAT/0522/11) it was determined that the ETTA was contractual. Faced with that outcome Mears gave notice to employees that the payments were to end. The claimant employees contended that this was a unilateral variation of their contracts, the reason for which was the TUPE transfer to Mears and was therefore void, by reason of Regulation 4(4) of TUPE. An employment tribunal held, however, that the reason for the variation was not the transfer, but was because the ETTA was an outdated and unjustified payment.

The EAT (HHJ EadyQC agreed. Nor, in its opinion, was the Salt litigation linked to the transfer. It was simply the context in which the employer had made its decision. As a separate point, some of the claimants had not met the conditions for payment (by not submitting any claims since 2001).

On the primary point HHJ Eady QC said this: “It is…common ground that the passage of time will not necessarily mean the causal connection [with the transfer] disappears. On the other hand, merely because the variation takes place against the backdrop of a transfer does not mean that it is the reason for that variation: this is not a “but for” test and context alone is not sufficient. The question to be asked is:  what is the reason? What caused the employer to do what it did?” The important point here was that the operative reasoning - the belief that the payment was outdated and unjustified - did not arise purely on the occasion of, let alone because of, the transfer; it was a pre-existing belief or state of affairs. Upon Mears coming onto the scene, it faced the same dilemma.

Finally, it was true, that in the employer’s letter to the workforce rescinding the ETTA it had stated that “...it is wholly unfair on the remainder of the workforce who operate in exactly the same way as the [electricians] and who have not presented any claim to travel allowances”. The claimants contended that this evidenced a desire purely to harmonise terms and conditions inherited following a TUPE transfer. It will be remembered that the European Court held in Martin v South Bank University [2004] IRLR 74 that if a transferee employer wished merely to bring the terms which transferred employees into line with those of its other employees then, in such circumstances, an alteration of the employment relationship must be regarded as connected to the transfer. The EAT rejected this contention. The letter had been mischaracterised. It was not a reference to the need for harmonisation, but the need for fairness across different job groups, regardless of the transfer.