In the second part of our series on contract management pitfalls, we look at the risks and opportunities presented by payment mechanisms in construction contracts.
In the case of Tabberer and others v Mears and others, the Employment Appeal Tribunal (EAT) has found that where a TUPE transfer has taken place, subsequent changes to employees’ terms and conditions may not be invalid if the changes were not made for a reason connected with the transfer.
In this case, the removal of an outdated contractual travel allowance that had come to light at the time of the transfer was held to be valid.
Regulation 4(4) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE’) states that “any purported variation of a contract of employment that is, or will be, transferred by paragraph (1), is void if the sole or principal reason for the variation is the transfer.”
Prior to changes made on 31 January 2014, the regulation also stated that changes to an employee’s terms would also be void if made for “a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce.”
Whilst the reference to ‘reasons connected with the transfer’ no longer exists, Tabberer and others v Mears and others was considered in the context of the pre-2014 regulations, as the dispute arose in July 2012.
The claimants in this matter were electricians, originally employed by Birmingham City Council (BCC). As employees of BCC, the electricians were entitled to an ‘Electricians’ Travel Time Allowance’ (‘ETTA’) which was designed to compensate them for the loss of a productivity bonus when they were required to travel to different depots across Birmingham. At the time the ETTA was implemented in 1958, there were up to 40 depots across the city. However, the majority of these closed over time and the productivity bonus was accordingly phased out. Whilst these changes removed the need for the ETTA, the electricians continued to receive the allowance.
The employees were subject to a TUPE transfer in 2006, during the course of which, managers for the new employer flagged the issue of the unnecessary ETTA and questioned why it was still being paid. However, the employer continued to make the payments despite its concerns, as it believed that the payments were contractual.
A further TUPE transfer to Mears Ltd (‘Mears’) took place in 2008. Mears questioned whether the electricians had any entitlement to ETTA and after investigating the issue, decided to stop all payments of the allowance on the basis that the electricians no longer met the eligibility criteria.
The employees initially brought a claim (Salt and others v Mears Ltd) on the basis that non-payment of ETTA amounted to an unauthorised deduction from their wages. The Employment Tribunal (‘ET’) found in favour of the electricians, and Mears’ appeal against the ET’s decision was ultimately unsuccessful.
Mears subsequently announced that ETTA would “no longer form part of anyone’s contract of employment”, and gave notice to the employees that the allowance would end from September 2012. The electricians then brought a further claim for unlawful deductions from wages on the basis that the variation of their terms of employment was void under regulation 4(4) of TUPE.
Employment Tribunal decision
The ET found that the reason for the change of the electricians’ terms of employment was because ETTA was an outdated and unjustified allowance. Therefore, the change was not in fact related to the 2008 TUPE transfer to Mears. The claim was therefore rejected. The ET also considered that in any event, most employees had not met the conditions for payment of the allowance as they had not submitted an ETTA claim form.
The electricians appealed the initial decision, arguing that the ET was incorrect in its finding that the contract variation was unrelated to the TUPE transfer. They argued that the whole subject matter of Salt v Mears was related to the transfer and the reasons for the change included the adverse findings in that litigation and so the change was connected to the transfer.
The employees also challenged the ET’s finding that the submission of an ETTA claim form had been a pre-condition of entitlement for the allowance.
The appeal was dismissed by the EAT on the basis that, though the outcome of the earlier Salt litigation had been the context for the employer’s decision to vary the employees’ terms of employment, it was not the reason for it. It decided that the reason for the contract variation was in fact the belief that the ETTA was outdated and unjustified (which was also a belief held by previous employers) and not the fact that a transfer had occurred. The claimants argued that the reason was inextricably linked to the transfer because the decision to remove the entitlement was its reaction to the ruling that there was a contractual entitlement at the time of transfer. The EAT said that the claimants were confusing the context in which the decision was made with the reason why the decision was made; these circumstances were no different to a new manager coming into the workplace and learning of such an entitlement.
In relation to the electricians’ argument that the claim form was not a pre-condition of entitlement to ETTA, the EAT found that, as they had not objected to this at the time of the ET hearing, it could not do so for the first time at the appeal stage. In any event, the ET had determined the issue on the facts and had adequately explained its decision.
This case illustrates that post-transfer changes to terms and conditions may not be forbidden by TUPE. The key question is what the reason for the change is; here the fact that there was no rational purpose for continuing the ETTA (and that this was the employer’s view both before and after the transfer) was found to be the central issue. It’s also clear that the fact that there has been a transfer may simply be the background to the situation and not actually the reason for the change.
Though the case was considered in relation to the pre-2014 TUPE regulations, our view is that the outcome would have been the same under the post-2014 version of regulation 4(4).
Whilst transferees should exercise caution when making contractual changes post-transfer, employers should be reassured by the outcome of this case which highlights that not all changes will be automatically invalid following a transfer.
For more information
Please contact Anna Dabek.
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