Hi, my name’s Katie Glendinning, I’m a Partner in the employment team at Clarkslegal. This is the eighth podcast in our ‘TUPE podcast series and will focus on dismissals in a TUPE context.

Before we talk through TUPE, it is worth just a quick recap on the standard position with regard to unfair dismissal.

The standard position, is that employees with two years’ service qualify from protection against ordinary unfair dismissal. 

While the Labour Government has confirmed its plans to change the existing law to make ordinary unfair dismissal a day 1 right, subject to specific rules around the operation of a probationary period, these changes will not come into effect before Autumn 2026, at the earliest.

An employer seeking to dismiss an employee will need to show two things:  Firstly, that it had a fair reason for the dismissal (this will be one of five statutory reasons which are – conduct, capability, redundancy, illegality or the catch all “some other substantial reason”) and, secondly, that it acted reasonably in dismissing the employee for this reason – this involves looking at whether the employer carried out a fair process.  This second point is referred to as the ‘reasonableness test’.

As well as ordinary unfair dismissal, there are certain reasons for dismissal which will be automatically unfair.  These differ to ordinary unfair dismissal cases as, for these, there is no need to look at the reasonableness test.  Therefore, if the reason for dismissal is deemed automatically unfair, then the dismissal will be unfair regardless of the process followed by the employer. Examples of this include dismissals connected to whistleblowing, taking part in official industrial action, or pregnancy.   

Now an important point for us to note is that usually the two-year length of service requirement for ordinary unfair dismissals claims will not apply to automatic unfair dismissals.  However, there are exceptions to this and TUPE is one which we will talk through now.

Employees dismissed in the TUPE context will, of course, have all the same unfair dismissal rights as others and so could bring a claim for ordinary unfair dismissal.

However, in addition, if the employee is dismissed and the sole or principal reason for their dismissal is a TUPE transfer, this dismissal will be treated as being automatically unfair.  However, even though this is automatically unfair, the employee will still need to have two years’ service to bring this claim.

So, which employees are protected

This automatic unfair dismissal protection could apply to:

• employees of the transferor dismissed before the transfer, whether or not they were employed in the business or services being transferred;
• employees of the transferor who remain behind with the transferor and are dismissed after the transfer;
• employees who transfer to the transferee and are dismissed after the transfer by the transferee;
•  existing employees of the transferee who are dismissed before or after the transfer.

Dismissal for the sole or principal reason of the transfer 

So whether the sole or principal reason for the dismissal is the transfer will be a question of fact taking into account all of the relevant circumstances.

Dismissals for reasons totally unconnected with the transfer may be unfair under ordinary principles but will not be automatically unfair – for example if the individual is dismissed for misconduct.

The TUPE regulations make clear that where the sole or principal reason for the dismissal is an economic, technical or organisational reason entailing changes in the workforce (‘known an ETO reason’) the dismissal will not be automatically unfair under TUPE, but the ordinary unfair dismissal rules will apply.

The onus on establishing an ETO reason will fall on the employer. 

So what is an economic, technical or organisational reason?

This could include: 

• a reason relating to profitability or market performance (i.e. an economic reason);
• a reason relating to the nature of equipment or production processes (i.e. a technical reason); 
• a reason relating to management or organisational structure (i.e. an organisational reason).

What does ‘entailing changes in the workforce’ mean?

‘Changes in the workforce’ means:

• a change in the number of employees;
• or a change in the functions of employees – it is not necessary for the change in function to affect the whole workforce. However, a minor change in the function of a small number of employees may not be sufficient; or
• a change in workplace.

It can be difficult to know if a reason will amount to an ETO reason.  Obviously, a genuine redundancy situation will usually be for an economic and organisational reason and will result in a reduction in the number of employees and so will usually satisfy the ETO reason test.

There have been other, less obvious, examples in the Tribunals including that in the case of Nationwide Building Society v Benn and others UKEAT/0273/09.  In this case employees transferred to Nationwide which had a much narrower product range than their previous employer.  A job mapping process was carried out pre-transfer without the employees’ involvement and their roles were changed to align to those in Nationwide. As a result of the narrower product range some managers felt that key aspects of their roles had diminished and they resigned claiming constructive dismissal. It was held that, on the facts, Nationwide’s limited product range did amount to an organisational reason and as it entailed changes to job functions this was an ETO reason. It should be noted, however, that this case was remitted back to the original tribunal to determine whether the dismissals were unfair under ordinary principles given the lack of process followed with individuals.

This decision does need to be treated with caution and it should be remembered that changes to simply harmonise terms will not be permitted. 

Unsuccessful ETO arguments have also been advanced in the Tribunals and include, for example, a situation where the transferee requests the dismissal of employees pre-transfer as a condition of sale (where this had nothing to do with the running of the business) and there was a case where an administrator effected dismissals to make the business more attractive to potential buyers which was not a valid ETO.

This is a notoriously tricky area of law and case law is extremely fact specific.  It’s obviously outside the scope of this short podcast to explore this further, however, you can contact our employment team for more information and you should seek appropriate advice if you are intending to rely on an ETO reason in a TUPE context.

So, who Is liable for the unfair dismissal

Let’s start with the transferor.

The transferor will be liable for the unfair dismissal of any of its employees:

•  not in scope to transfer, whether they are dismissed before or after the transfer
• It will also be liable for any of its employees that are in scope who are dismissed pre-transfer for an unconnected reason such as misconduct.

 
The transferee will be liable for the unfair dismissal of:

• Any of the transferor’s employees who are in scope to transfer and are dismissed by the transferor before the transfer by reason of the transfer
• And the transferee will also be liable for the unfair dismissal of any of its employees. This will include any dismissals relating to its existing workforce before or after the transfer and of course the transferee inherits employees under TUPE and so it will also be liable for any dismissals of these transferring employees after the transfer.  

Constructive Dismissal

If an employer commits a repudiatory breach of contract (i.e. a serious breach which allows the employee to treat the contract as having come to an end) and the employee resigns as a result, the law converts the resignation into a dismissal – this is called constructive dismissal.   

In a TUPE situation, an employee who would otherwise be in scope to transfer to the transferee could resign claiming constructive dismissal relying on a repudiatory breach of contract committed by the transferor pre-transfer. It is also possible for the employee to resign in response to an anticipated future breach by the transferee. 

The resignation may or may not be accompanied by an objection to the transfer. This is important as it determines who will be liable, the transferor or the transferee. 

If the employee objects to the transfer as well as resigning, then the transferor retains all liability as the employee’s contract will not transfer to transferee. 

If, however, the employee resigns, without objecting to the transfer, then the usual position under TUPE applies and the transferee will be liable If the sole or principal reason for the constructive dismissal is the transfer itself.

Remedy

The normal unfair dismissal remedies are available to employees who are automatically unfairly dismissed under TUPE and so we have not gone through these here but details on the types of compensation available in unfair dismissal claims can be sought from our employment team if you do need this.

That brings us to the end of this podcast. I hope you’ve found it useful.