What happens when an employee rejects a TUPE transfer? Christopher Hitchins, head of the employment practice at Katten Muchin Rosenman UK LLP, looks at what HR practitioners and employers need to know.
TUPE’s fundamental principle is that if employees are in scope to transfer, they will transfer automatically on the same terms and conditions, without any need to sign new paperwork. However, employees do have a choice in the matter, and have the right to object to the transfer if they wish. The legal position can then become quite complicated, but from a practical perspective, in most cases, an objection to transfer is a resignation, and not a redundancy or unfair dismissal. An employee’s choice will therefore be either to work for the transferee or to resign and leave empty-handed
What is the legal effect of an objection to transfer?
If an employee objects to a TUPE transfer, the legal position is that they are taken to have resigned, with effect from the date of the transfer, and do not have any legal remedy, save in very limited circumstances. These limited circumstances are (i) “where the transfer involves or would involve a substantial change in the employee’s working conditions to his or her material detriment” (the TUPE reason), or (ii) where the employee resigns in response to a repudiatory breach of contract in circumstances entitling the employee to terminate the contract without notice by reason of the employer’s conduct (a normal constructive dismissal resignation).
While these two tests are different, and it may be very hard to decide in practice which one the employee is relying on, both of these tests set a very high bar, so as a practical tip just remember the general position that if an employee objects to the transfer, they are unlikely to be entitled to anything, and will be taken to have resigned when the transfer takes place.
What constitutes substantial material detriment?
A “substantial change to working conditions” is more than just a proposed change to terms and conditions of employment. The legislation uses the term “working conditions”, which is broader and can extend to non-contractual matters, such as uniform, reporting lines (if not in the contract), non-contractual perks etc. A “material” detriment does not necessarily have to be so serious as to amount to a repudiatory breach of contract such as in the case of constructive dismissal, but clearly the change has to have a large impact on the employee and can’t be trivial.
In theory, a change in the identity of the employer could constitute a “substantive change”, e.g. if the employee would suffer a loss in status that could prejudice him or her in the job market in the future.
What about a major change of location?
A major relocation of the workforce is likely to be a substantial detrimental change, but may not be if the employee has a mobility clause in his or her contract requiring them to work at various locations. It will be for the Tribunal to decide on a case-by-case basis, taking into account how the individual is impacted.
Who is the claim against?
This is the tricky bit! Remember the distinction above between the TUPE reason for objection and a constructive dismissal resignation? The distinction between those two basically comes down to how severe the change is – if it’s substantial and material, then it’s a TUPE objection; if it’s enough to amount to a total discharge of the contract (i.e. a more severe reason), then it’s constructive dismissal.
As a rule of thumb, constructive dismissal claims will most likely transfer to the incoming employer, whereas claims that there is a substantial change to your material detriment will stay with the existing employer. This creates the difficult situation for transferors that employees may not like what they’re hearing about the new employer, and object to transfer as a result. In that situation it will be the transferee’s reason which has caused the objection, but the transferor’s liability (you would seek to address that risk through indemnity protection).
Can you manufacture an objection, e.g. if the transferee does not want them or no-one wants to pay redundancy costs?
A refusal to give consent is a valid objection to the transfer. However, cases where employers have sought to manufacture an objection by offering employees a cash incentive to sign a settlement agreement have sometimes backfired on the employer, as the Tribunals have said that those employees had not properly objected to it. Remember, employees cannot ‘contract out’ of a transfer, so if it is not a valid ‘objection’, they can still assert their rights to automatically transfer to the new employer even if they have signed a settlement agreement.