ETO and Failure to Consult

Lucy Bond employment solicitor at Davidson Large Solicitors explains the importance for employers of consulting with employees who are affected by a TUPE arrangement

Consulting for TUPE

Lucy Bond employment solicitor at Davidson Large Solicitors explains the importance for employers of consulting with employees who are affected by a TUPE arrangement.

When conducting a transfer to which the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) apply, some employers may not adhere to their consultation obligations – either strictly or at all.

Employers should make every effort to consult with staff in relation to a transfer, and a recent case suggests that whether consultation took place could be considered when deciding whether employees were dismissed fairly.

The facts

This case involved 21 claimants, but it had been agreed that the cases of Mr Bonnett and Mr Smith-Galer would be examined as “samples” (referred to as “the claimants”).

The claimants all worked for Portman Building Society (PBS) and occupied one of two roles – Financial Planning Managers (FPM) or Regional Sales Managers (RSM). When PBS was taken over by the Nationwide Building Society in August 2007, harmonisation required that FPM become Senior Financial Consultants and RSM become Area Sales Managers. Mr Bonnett was an FPM and Mr Smith-Galer was an RSM.

Mr Bonnett resigned on 24 December 2007, claiming that his standing, quality of service and ability to provide advice had been substantially diminished due to Nationwide’s limited product range.

In addition to the change of roles, the bonus scheme of PBS was changed. It was decided in July 2007 that an interim bonus scheme would operate for five months after the transfer until January 2008. For those five months, employees would receive a monthly bonus which represented an average of what they received in the seven months prior to the transfer. Mr Bonnett and Mr Smith-Galer both earned about £5,000 per month in bonuses in the relevant seven month period.

The new bonus scheme was announced to employees on January 2008. In February, Mr Smith-Galer’s bonus earnings fell to £1,000 per month. In April 2008 he resigned, claiming that his role had changed significantly and his earnings had diminished. He also cited the lack of office space and the unwelcoming atmosphere.

The claimants argued that their terms of employment had been altered to their detriment and they had been effectively downgraded. Those affected by the substantially less beneficial bonus scheme argued that this was a further breach. All argued there had been a fundamental breach of trust and confidence entitling them to resign and claim constructive dismissal.

The Tribunal decision

The Tribunal held that both sample employees had been constructively dismissed. The change of roles represented a diminution in the skills and responsibilities of the employees. Their existing skills were “superfluous” given Nationwide’s limited range of products.

In addition, the Tribunal felt there was evidence that they had been dismissed by virtue of regulation 4(9) of TUPE which states that where a transfer involves “a substantial change in working conditions to the material detriment” of an employee, that employee may treat themselves as having been dismissed.

With the second finding in mind, the Tribunal held that the reason for dismissal was an “economic, technical or organisational reason entailing changes in the workforce” (ETO) which is a potentially fair reason to dismiss under regulation 7(2). The Tribunal concluded that the change in terms and conditions was an organisational reason which entailed changes to the workforce.

However, the Tribunal held that the dismissals were procedurally unfair under section 98(4) of the Employment Rights Act 1996 (ERA). Prior to the transfer, a job-mapping exercise had taken place, handled jointly by Mr Watt of Nationwide and Ms Thompson of PBS. Although a Joint Consultative Group (JCG) existed, comprising of members of both Nationwide and PBS, the Tribunal could find no evidence that the JCG was consulted about the job-mapping or change to the bonus scheme, or that they were even provided with details of these matters. The Tribunal did not feel that interaction of Mr Watt and Ms Thompson with members at JCG meetings amounted to “consultation with a view to reaching agreement”, the wording in regulation 13(6).

With regards to the bonus, the Tribunal held that there was no breach until January 2008 when the new scheme was rolled out. Mr Bonnett, and any other claimants who resigned before that date, could not allege a breach by NBS in that respect. However, the reduction of Mr Smith-Galer’s bonus from £5,000 to £1,000 did constitute a fundamental breach.

The decision was appealed by both parties.

The arguments on appeal

Nationwide argued that the Tribunal had erred in referring to regulation 13(6) when deciding whether a fair procedure had been followed. The job-mapping had not been a “measure” over which Nationwide were required to consult.

Furthermore, the claimants could not bring a complaint about this, because only representatives (where there are some) can bring a claim. Even if the claimants could bring such a claim, they had not done so in this instance. No suggestion of a breach of regulation 13(6) had been raised either in the ET1s or at the hearing, so Nationwide had not been given an opportunity to present arguments or evidence on this point.

The claimants argued that the breach of regulation 13(6) formed a part of the Tribunal’s reasoning, but not a critical part – it was just one element relied on to determine fairness. The decision that fundamental breaches had occurred did not rely on any breach of regulation 13(6).

It was also argued by the claimants that the changes in roles did not affect the whole workforce, only the former PBS employees. As such, it could not amount to an ETO reason under regulation 7 and thus a fair reason for dismissal.

The Employment Appeal Tribunal’s (EAT) decision

The EAT’s first conclusion was that the Tribunal had erred in relying on regulation 13(6) to find procedural unfairness. It had not been referred to in the ET1s, had not been included on the agreed list of issues and had not been raised at the hearing. The parties had not been given an opportunity to make representations on it, yet there were “substantial references” to it in the judgment.

Quoting previous case law, the EAT commented that “it is a fundamental principle of natural justice that a party should have the right to make submissions on any issue which is the subject of the dispute and in relation to which adverse findings may be made”. It was clear from the Tribunal’s reasons that it had relied on the lack of consultation to find that there had been procedural unfairness and in this it had erred.

Whilst disagreeing with Nationwide that the job-mapping was not a “measure” on which it needed to consult, the EAT felt no need to comment on this further given their finding that the Tribunal had erred in its treatment of regulation 13(6) and its consideration of the lack of consultation.

Examining the conclusion of the Tribunal that fundamental breaches of contract had occurred, the EAT held that this conclusion had not been “contaminated” by the Tribunal’s assessment of regulation 13(6). The EAT also felt that the diminution of role and reduction in bonus payments “rightly led to a conclusion that the Claimants had been dismissed by application of regulation 4(9)”.

As to whether the claimants had standing to bring a claim about the lack of collective consultation, the EAT noted that the right to bring a claim was only available to individuals where an employer has failed to secure the election of employee representatives. In such circumstances, information is given only to affected employees and they have standing to bring a claim.

The EAT also disagreed with Nationwide’s argument that a reorganisation needed to apply to a whole workforce to bring it within the remit of an ETO, noting that TUPE applies not only to a transfer of an undertaking but also to a transfer of part of an undertaking.

The decision that the dismissals were unfair was set aside and the matter was remitted back to the same Tribunal to reconsider and allow both sides to make submissions on this issue.


Buying and selling a business can be a stressful time for any employer. Consultation, whether individual or collective, lessens the chance of subsequent employment claims. This is not just because all parties have complied with their legal obligations, but also because consultation with employees will make them feel valued and more in control.

Although the lack of consultation in this case was not held to be applicable when considering the fairness of a dismissal, this finding was simply because the claimants had not expressly argued it in the first place. In its closing paragraphs, the EAT commented that “it is open to the ET to have regards to the extent and nature of any consultation both collective and individual engaged in by [Nationwide] on the changes in the Claimants’ job roles and applicable bonus scheme in deciding whether their dismissals were fair for the purposes of ERA section 98(4). Whether and to what extent to take into account such consultation or lack thereof in deciding upon the fairness of the dismissals is a matter for the ET.”

As such, it is clear that where the matter is argued, a Tribunal will be able to take into account how much – if any – consultation an employer entered into when deciding whether a dismissal is fair. In Nationwide v Benn & others, the Tribunal was satisfied that the lack of consultation led to a procedurally unfair dismissal, although this was subsequently overturned by the EAT. Whether the Tribunal’s finding is the same once the matter has been remitted remains to be seen, but the clear message is that consultation should be entered into in all relevant situations or employers run the risk of any subsequent dismissals being found to be unfair.

Please note that this article is for guidance only and does not constitute legal advice.

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