The recent EAT decision in Thompson v SCS Consulting Limited & Others deals with a vitally important issue which is to be specifically addressed in the new TUPE regulations. The particular issue is whether a dismissal for an ETO reason (an economic, technical or organisational reason entailing changes in the workforce) (Reg 8 (2)) can also be a dismissal for a reason connected with the transfer (Reg 8 (1)) or whether the two are mutually exclusive. The decision in SCS is a decision which is to the advantage of the transferee of the business.
The facts of the case:
Receivers were appointed on 21st December 1998 over the Canadian Parent Company of two UK companies (the First and Second Respondents) which owned the UK business. Receivers designate in the UK for both UK companies stated that on appointment they would have to dismiss all the employees of the UK business immediately because there were no funds to pay their wages.
Open Text UK, the potential purchasers, persuaded the receivers to delay their appointment as OpenText UK did not want all the employees to be dismissed just before Christmas and they did not want to lose employees who could be vital to the running of the business if they bought it. It was agreed Open Text UK would identify to the receivers designate who they wanted kept on.
On 29th December the UK receivers were appointed. At 11.30 am the receivers dismissed all those employees who Open Text UK did not want kept on. At 10.30 pm the transfer of the business (to which TUPE applied) took effect and the remaining employees of course transferred to Open Text UK.
Mr Thompson was one of those dismissed by the receivers. He claimed that he had been unfairly dismissed for a reason connected with the transfer and that, pursuant to TUPE, Open Text UK were liable to him in respect of his unfair dismissal.
Open Text UK defended the claim on three grounds:
(1) that Mr Thompson had been dismissed before completion and was therefore not employed by the First or Second Respondents "immediately before the transfer" as required by Regulation 5 (3) of TUPE and accordingly no liability passed under TUPE to Open Text UK.
(2) Mr Thompson was not dismissed for a reason connected with the transfer but because the First and Second Respondents was not viable and redundancies were inevitable regardless of the transfer.
(3) alternatively that Mr Thompson was dismissed for an economic, technical or organisational reason (an ETO reason) entailing changes in the workforce and was fairly dismissed for such reason.
EAT guidance:
The EAT gave the following guidance:
1. The reason or principal reason for the dismissal must be established. If the reason or principal reason is an ETO reason then Regulation 8 (2) applies and Regulation 8 (1) is excluded so the extended construction on timing of the dismissal (known as the Litster principle) does not apply. However, if the reason or principal reason is the transfer itself then Regulation 8 (2) does not apply, the Litster principle does or may apply and the dismissal is automatically unfair.
2. In deciding whether an ETO reason is or is not the reason or principal reason for the dismissal the Tribunal must make a factual decision.
3. In making the factual decision the Tribunal must consider whether the reason is connected with the future conduct of the business as a going concern.
4. The Tribunal is entitled to take into account whether there was any collusion between the transferor and transferee and whether the transferor or those acting on its behalf had any funds to carry on the business or any business at the time of the decision to dismiss.
The EAT decision:
The EAT concluded that the Tribunal had correctly stated that the issue was whether Mr Thompson was automatically unfairly dismissed because of the transfer or for a transfer-connected reason contrary to Regulation 8 (1) or whether the reason or principal reason for his dismissal was an ETO reason in accordance with Regulation 8 (2). The EAT agreed with the Tribunal and concluded that Mr Thompson was dismissed for an ETO reason within Regulation 8 (2) of TUPE and that he was not to be treated as automatically unfairly dismissed. The Tribunal reached a factual conclusion that the dismissal of Mr Thompson was for an ETO reason. The business of the First and Second Respondent was over staffed, inefficient in terms of sales and insolvent and it could only be made viable for the future and continue as a going concern if the workforce was reduced in size. The EAT concluded there was no collusion and left to their own devices the Receiver would have dismissed all the employees. The dismissal of Mr Thompson could properly be seen as taking place not in order to secure a sale or to enhance the sale price or at the behest of the transferee but for an ETO reason. The EAT concluded that no liability transferred to Open Text UK.
Comment
The EAT deftly avoids committing itself on the relationship between Regulation 8 (1) and 8 (2) by focusing on the main or principal reason for the dismissal. However, this suggests that if the main or principal reason is an ETO reason then the dismissal will be fair, even if it is connected with the transfer. This is certainly the clarification identified in the new TUPE Consultation paper and it is hoped that dismissals for genuine ETO reasons will now be simpler in TUPE cases.
For further information on EAT guidance and the EAT decision please contact Anthony Fincham by telephone on +44(0)20 7367 2783 or by e-mail at anthony.fincham@cms-cmck.com or Simon Jeffreys by telephone on +44 (0)20 7367 3421 or by e-mail at simon.jeffreys@cms-cmck.com.
