TUPE: ETO Reason for Dismissal

[Thanks to Ed McFarlane of Deminos HR for preparing this case summary]

Can a transferee establish an ETO defence to an otherwise automatically unfair transfer-related dismissal if it provides the services rendered by transferring employees through franchised limited companies, rather than by its own employees?

Yes, says the EAT in Meter U Ltd v Ackroyd, conjoined appeals from tribunals in Leeds and Exeter involving the same employer and multiple Claimants.

The employer had taken over meter reading contracts as service provision changes under TUPE, and dismissed the transferring meter readers as redundant, using franchised companies in their place. The employer's ETO defence was that this entailed a change in the nature and composition of its workforce, with companies replacing redundant employees, even though the employees could have taken up franchise arrangements through their own companies. The two employment tribunals found the dismissals unfair on different bases, holding either expressly or implicitly that the franchise companies were part of the employer's workforce - hence the changes in the workforce were like for like and there was no ETO.

Overturning the findings of Unfair Dismissal, the EAT held that the term 'workforce' in Regulation 7 (2) TUPE 2006, which is not defined either in TUPE or the Acquired Rights Directive, did not include limited companies (or their staff) performing services for the employer. Accordingly, it upheld the ETO defence. If the franchise arrangements were a sham, disguising continued employment by the employer, the ETO defence would not apply, as it would be a simple change in terms and conditions in connection with a transfer.

The EAT remitted the cases for determination of the fairness of the dismissals, and in the Exeter case, for further findings as to whether the franchise arrangements were a sham, the Leeds Tribunal having rejected a 'sham' argument.