A dismissal may be automatically unfair as being transfer-related even if, at the time of the dismissal, no transfer has yet taken place.

The recent EAT judgment in the case of CAB Automotive Ltd v Blake and others; Singh and others and RDS Automotive Interiors Ltd (in administration) concerned a business that was making car interiors for MG Rover when it collapsed in April 2005.

This presented the company with an immediate financial crisis. An administrator was appointed who said that his role was 'to tidy up the business to sell it to somebody else'.

Many employees were made redundant and it was only shortly afterwards that a transfer plan evolved whereby the business of fitting interiors into Land Rovers (which was ongoing) was transferred to a new company. The employees who had been made redundant claimed that their dismissals were automatically unfair under the TUPE regulations as being transfer-related and that the new company (the transferee of the business) was liable to pay them compensation. The Employment Tribunal upheld their claim but the transferee appealed to the EAT.

Under TUPE Reg. 7 (previously Reg. 8) a dismissal is automatically unfair if the sole or principal reason for the dismissal is either - the transfer itself; or

"a reason connected with the transfer' that is not an economic technical or organisational reason entailing changes in the workforce (an ETO reason).”

If a dismissal is made for an ETO reason then, under TUPE Reg. 7(2) and (3), the dismissal is treated as a redundancy dismissal - potentially fair unless the Claimant can prove unfairness in the ordinary way e.g. by showing that there was a failure to consult or (where appropriate) offer suitable alternative employment.

The EAT has upheld part of the Employment Tribunal decision that confirmed a 1998 decision in the case of Morris v John Grose Group that dismissals may be TUPE-related and thus automatically unfair under what is now Reg. 7 even if, at the time of the dismissals, no buyer for the undertaking has yet been identified.

However, the transferee’s appeal was not wholly unsuccessful because the EAT found that the Employment Tribunal was wrong on two other issues:

  • Although it found that the dismissals were 'connected with' the subsequent transfer, it did not say that the transfer was the REASON FOR the dismissals; and

  • The Tribunal said that, once it had found that the administrator's intention was to 'engage in dismissals as a cost-cutting exercise with a view to a possible sale', then there was no possibility that the dismissals could have been for an ETO reason. This was wrong.

The EAT confirms that a Tribunal faced with this issue must decide the following questions (and in this order):

  1. Were the dismissals transfer-related?

  2. If so, was the transfer (even if no buyer yet identified) the sole or principal reason for the dismissals?

  3. If so, was there an ETO reason for the dismissals? If so they are potentially fair. If not, they are automatically unfair.

Points to note:

  • A dismissal made with a view to a sale of a business as a going concern may be transfer-related (and thus automatically unfair) even if at the time of the dismissal no transfer has taken place.

  • There is an exception under TUPE Reg. 7(2) and (3) for dismissals made for an ETO reason which may be fair. In order to properly assess whether a dismissal may be transfer-related and/or whether this exception applies, it is important to obtain expert advice at the earliest possible stage.

There is no need to consult under TUPE or under TULRCA on a transfer of functions between public sector service providers.

In the strange case of Adult Learning Inspectorate v Beloff, the EAT had to consider whether either the TUPE regulations or the collective consultation provisions of s.188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) applied when the Adult Learning Inspectorate (ALI – a government-funded body) was 'swallowed up' into Ofsted and its office in Coventry was closed down with inevitable redundancies

Dealing first with the TUPE regulations, the Employment Tribunal had decided that TUPE did not apply because what was happening here was a transfer of functions between public administrative authorities which falls outside the scope of the European Acquired Rights Directive (on which TUPE is based) following the ECJ decision in the case of Henke.

The Tribunal had then considered s.188 TULRCA and the exception provided by s.273 TULRCA – that none of the TULRCA statutory procedures for handling redundancies - including the duty to consult - applies to those in 'Crown employment'.

The Employment Tribunal had considered that the ALI employees fell outside this exception because the statute which created the ALI specifically said that it should not have Crown immunity from suit, suggesting that it should not be treated as a government department.

However, the EAT now disagrees. The ALI may not have had Crown immunity but it still carried out functions on behalf of the Crown so its employees should be treated as being in Crown employment. Also there should be no distinction between the extent of the rights given by TUPE and those given by TULRCA.

It followed that the Claimants in this case had no statutory entitlement – whether under TUPE or TULRCA – to be consulted prior to being dismissed as redundant when their workplace closed down.

Points to note:

  • This case is the exception that proves the rule and even where employees may (exceptionally) have no statutory right to be consulted, they may well have rights under collective agreements instead. The general statutory rule is that an employer proposing to dismiss at least 20 employees within a period of 90 days or less has a statutory duty to engage in collective consultation under TULRCA ‘in good time’ and at least 30 days before the first redundancy takes effect (90 days where 100 or more employees are affected), failing which a protective award will be payable.

  • Similarly under TUPE on the transfer of a business as a going concern (but in this case regardless of the number of employees affected) a failure to consult with employee representatives prior to the transfer will mean that a compensation award is due to each employee.

  • Liability for compensation for failure to consult can be avoided altogether if redundancies or transfer-related dismissals are properly planned. We shall be happy to advise further.