Employee who objected to TUPE transfer involving detrimental change to working conditions was dismissed by the transferor

The Employment Appeal Tribunal has handed down a useful decision which clarifies what happens when an employee objects to a TUPE transfer due to detrimental changes. The case, London United Busways Ltd v De Marchi, confirms that if an employee refuses to transfer because the move would significantly worsen their working conditions, they can still be treated as dismissed rather than simply resigning. It closes a long-standing gap in TUPE protection, ensuring that employees are not left without a legal remedy when refusing to transfer due to detrimental changes. That’s significant because it means the transferor employer could now face liability for unfair dismissal and, in some cases, redundancy pay in situations where employees object on valid grounds. We’ll peak to a TUPE expert about that.

The case concerned a bus driver, Mr De Marchi, whose employer, London United Busways, lost a contract to Abellio. As a result, De Marchi was set to transfer under TUPE. However, the transfer would have added an hour onto his commute each way, a significant change to his working conditions. De Marchi objected to the transfer, asking for redundancy instead. His employer refused, telling him he had to either transfer to Abellio, accept a new contract with worse terms at Busways, or resign. He rejected all three options but did not explicitly treat his contract as terminated under TUPE Regulation 4(9). Despite his objection, Busways treated him as having transferred. Abellio later dismissed him for failing to engage with them. De Marchi brought claims for unfair dismissal against both employers.

At first instance the Tribunal found that the claimant had objected to the transfer and that, as the transfer would have involved a substantial change in working conditions to his material detriment, he was entitled to treat the contract as having been terminated under Regulation 4(9). However, despite his attempts to negotiate a redundancy payment he had not treated his contract as terminated. Instead, he had continued sending sick notes to HR and requesting sick pay from Busways. When Busways tried to transfer his employment to Abellio, the Tribunal considered this to be a dismissal. Both the transferor and the claimant appealed the Tribunal’s decision. 

The EAT dismissed both appeals. The EAT agreed with the Tribunal that the claimant had been dismissed by the transferor but disagreed with the Tribunal’s reasoning. If an employee objects to being employed by the transferee, this will prevent them from transferring. Where regulation 4(9) also applies, and the employee has not elected to treat their contract as terminated, the contract is considered to have terminated because of the change in working conditions. In this situation the employee is treated as having been dismissed by the transferor. So, De Marchi’s contract of employment did not transfer to Abellio, and since De Marchi had objected to the transfer because of a substantial change to his material detriment – the extra commuting time – it meant he was deemed to have been dismissed by Busways so liability rested with them.

So a useful ruling which helps tackle one of the criticisms of TUPE which is it doesn’t fully protect employees when the new employer plans detrimental changes and the employee doesn’t want to transfer onto those worse terms. So, let’s get a view on the case. Gill Ross is a TUPE expert based at our Glasgow office:

Gill Ross: “Yes, it’s an issue that I've come across in practice before in tribunal and the decision that both the ET and the EAT made is sort of in line with the position that was understood before but it does help clarify the position because there is a bit of a disconnect between regulation 4(7) when an employee objects to a transfer when the contract is treated as terminated but they're not deemed to be dismissed, and regulation 4(9) which says they are deemed to be dismissed. What the EAT has done is provide guidance around how those two provisions work together.”

Joe Glavina: “Given the risk of this liability arising, presumably it’s going to important for the parties to a TUPE transfer to include appropriate indemnities to cover this situation?” 

Gill Ross: “Yes, it's important. Whether it's an outsourcing or a business transfer situation particularly where the transferor gets notification that the transferee is proposing measures which could amount to substantial change in terms conditions to detriment of employees such as a significant change in location, is the one that comes up frequently in this scenario about regulation, 4(9) claims. So particularly in that situation but also, more generally, what the transferor should be looking to do is make sure that there is an indemnity for any regulation 4(9) claims because, as this case- has emphasised, where an employee objects to the transfer before the transfer takes place and the reason for that is that there is going to be material detrimental changes to their terms and conditions, then liability would rest with the transferor. Ultimately, it's not their fault, they're expecting TUPE to apply and it's the transferee’s proposals to changes to terms and conditions that are resulting in the employee objecting to the transfer and ultimately raising a claim. So in that situation, you could have the transferor liable for statutory redundancy pay, notice pay and automatic unfair dismissal as well. So it's quite a significant liability that needs to be covered off, and I think it's important transferors are alive to that risk.”

Joe Glavina: “Does this in any way affect the level of consultation that's going on and how that's conducted?”

Gill Ross: “I think it's always important. Where there are measures proposed that are likely to have a significant impact on employees it is important, obviously, they have to be told as part of the TUPE information and consultation process but where there's something that is going to impact on them, like a change in location, really, you would be hoping that the transferor and transferee work together to have more meaningful consultation with the employees about that and what mitigation can be put in place. For example, is there going to be some coverage for travel costs? Is there going to be an uplift in salary to account for the more travel they would have to do, or whatever the measure is, is there something that the transferee can do to give comfort around that change and reduce the number of objections and the number of potential claims that you might have under regulation 4(9) arising from that change? It’s difficult because you don't always have joint consultation processes between the transferor and the transferee, depending on the circumstances. The transferor can give as much comfort as possible through information provided by the transferee but, ideally, you would like to have the transferee coming in and speaking to the employees about their proposed changes and what it means and what support will be in place for the employees.”

Joe Glavina: “This case concerned someone complaining about a change in location and I'm guessing that's the common issue that crops up in practice?”

Gill Ross: “It can be, but it can be other things as well. For example, if there were changes in shift patterns, that's another one that crops up quite a lot if it's going to change their working life, ultimately. So a change in location could mean additional travel time, difficulties in commuting, public transport, childcare issues. Changes in shifts, equally, could mean a financial impact or changes in their home life and how they organise themselves. So those are probably the two that I come across most that seem to have the most objections. Smaller things wouldn't trigger the regulation 4(9) claim, but those sort of things are the ones that would engage that provision and lead to potential objections or claims. So they are the two issues I would see most.”

That case is called London United Busways v De Marchi and is a decision of the Employment Appeal Tribunal. We’ve included a link to the judgment in the transcript of this programme.

- Link to judgment: London United Busways Limited v (1) Mr V De Marchi and (2) Abellio London