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Scope of 'ETO reason' where there has been a transfer

Posted on 29th July 2010
Case law

The EAT has concluded that an ETO reason for a dismissal can apply where the relevant change applies only to part of the workforce.

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an ETO reason does not need to involve changes to the whole workforce to be valid

Nationwide Building Society v Benn [2010]

The law

Under the Transfer of Undertakings (Protection of Employment) Regulations 2006 ('TUPE') any dismissal or change to terms and conditions of employment which is connected with a relevant transfer is unfair unless the dismissal (or change to terms and conditions of employment) was for an economic, technical or organisational reason entailing a change in the workforce ('ETO reason').

Background

In this case employees of Portman Building Society transferred to the Nationwide Building Society under TUPE. As a result of a 'job mapping process' carried out prior to the transfer some of the Portman roles were to change to existing roles within Nationwide to reflect the product range offered by Nationwide and its existing structure. There was no real discussion with the employees or their elected representatives about the change. Also, an interim bonus scheme (different from Portman's) was put in place.

Some of Portman's employees resigned, claiming that they had been constructively unfairly dismissed by Nationwide for reasons connected to the transfer.

The decision

In reaching its decision, the employment tribunal and EAT concluded that Nationwide had fundamentally breached the employees contracts entitling them to resign and bring a claim for constructive unfair dismissal. Nationwide had altered the roles of some employees to their detriment. Also, the bonus scheme resulted in reduced income because of the narrower product range offered by Nationwide.

The tribunal and EAT decided that the dismissals were connected with the transfer but were for an ETO reason. The reason for the change to the roles and the resignation of the employees was Nationwide's narrower product range. It also concluded that the narrower product range was an 'organisational reason'. The narrower product range entailed changes in the workforce because it involved changes to the job functions of some of the transferring employees. The change to the bonus scheme was made for the same reason. In reaching this conclusion, the EAT held that an ETO reason does not need to involve changes to the whole workforce to be valid.

Comment

TUPE is a notoriously difficult area and this case will only be of interest to those involved in buying (or selling) businesses. That said this case is a welcome one and clarifies that differences in operational structure can justify changes to terms and conditions and amount to an ETO reason. It is also welcome clarification that the ETO reason does not need to affect the whole workforce. 

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