When businesses merge or there is a high level of outsource/insourcing present within an organisation, companies can find themselves with numerous sets of terms and conditions applying to different categories of employees across the business. This can lead to inefficiencies such as the cost of administering different benefit plans as well as dissatisfaction amongst groups of staff who consider themselves to be worse off than their colleagues, regardless of whether this is actually the case.

Human resources teams often, therefore, look to harmonise the terms of incoming staff to integrate their entitlements with the existing workforce.  This is fraught with legal risk and in many cases if the employee were later disgruntled they could argue in the Tribunal that such changes were void.

The law:

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) (The "TUPE Regulations") originally stated that all changes linked to the transfer itself were void.

The Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2014 (SI 2014/16)  (The "Amendment Regulations") reaffirms the position that any changes are void if the sole or principal reason for the variation is the transfer itself, that is “by reason of the transfer” but distinguishes the position and permits changes which are due to "reasons connected with the transfer" if an Economic, Technical or Organisational reason can be established (an ETO reason).

The Amendment Regulations also confirm that variations which are unrelated to the transfer will not be caught by the voiding provision (because the sole or principal reason for the variation would not be the transfer) and should therefore be permissible.

Guidance on the distinction between “by reason of” and “reasons connected with the transfer”

The BIS provides helpful guidance on the new distinction and helps to explain the difference between an action that is "by reason of the transfer itself" and one which is "for a reason which is connected with the transfer":

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/275252/bis-14-502-employment-rights-on-the-transfer-of-an-undertaking.pdf

When an employer changes terms and conditions simply because of the transfer and there are no extenuating circumstances linked to the reason for that decision, then such a change is prompted by reason of the transfer itself. However, where the reason for the change is prompted by a knock-on effect of the transfer, for example the need to re-qualify staff to use different machinery used by the transferee, then the reason is "connected [with] the transfer".  It follows that, for example, changes in an employee's remuneration package may be unconnected with the transfer (and therefore permissible) where they coincide with a substantially changed job. In this case, the catalyst for the changed terms is the different job content and not the need to change the terms for their own sake. However, where the change in job is a knock-on effect of the transfer, there would need to be an ETO reason.

The reality is that the employer’s ability to make changes to terms and conditions of employment for the purpose of harmonisation is very limited. There are a number of cases which have held that the desire to achieve harmonisation is usually connected to the transfer itself and the ETO defence will not apply unless the employer can point to a workforce reduction or change in the employee’s function.

Case law:

In Smith and Others v Trustee of Brooklands College [2011] it was held that the decision to harmonise employees’ terms post a TUPE transfer was lawful because it was to reflect standard industry practice and was not because of the transfer or a reason connected with the transfer. This decision signals, what many view as the start, that the courts are becoming more willing to allow employers greater flexibility to make changes to terms and conditions where the employer can demonstrate that the harmonisation is driven by business reasons such as business efficacy rather than by reason of the TUPE transfer.

Time delay

While there will come a time when it will be safe to make agreed changes to employees’ contracts on the basis that with the passage of time the link to the transfer is broken, there is no ‘rule of thumb’ or defined period of time used by the courts or specified in the TUPE Regulations after which it is safe to make this assumption. In the case of London Metropolitan University v Sackur (2009) the court held that a two-year interval was not sufficient to break the link between the contract change and the transfer, and the desire to harmonise terms and conditions could be traced back to the original transfer.