Where the TUPE Regulations apply to the transfer of an undertaking, employees’ contracts of employment will normally transfer automatically to the new employer (the transferee). However, TUPE also gives employees the right to object to the transfer, which will terminate their employment. If the transfer involves a substantial change in employees’ working conditions to their material detriment, they are also entitled to treat their contract as terminated and claim automatically unfair dismissal. The TUPE provisions dealing with these circumstances are complex. This is illustrated by the recent case of London United Busways Ltd v De Marchi, where the EAT had to consider the effect of an employee’s objection to a transfer that would have involved a detrimental change in his working conditions.
Mr De Marchi was a bus driver working on a route operated by London United Busways Ltd (LUB) out of a garage that was 15 minutes from his home. After a re-tendering exercise, LUB lost the contract for this route to Abellio London Ltd. TUPE applied to the transfer of this contract, meaning that Mr De Marchi’s employment would transfer to Abellio. However, he objected to being transferred because it would involve working out of a different garage over an hour away from his home. His request for redundancy was rejected by LUB because his role still existed, and he was offered three options:
- Transfer to Abellio under TUPE and move to the new garage, with a significantly longer commute.
- Object to the transfer and sign a new contract with LUB on amended terms, including a longer maximum duty time.
- Resign.
Mr De Marchi did not agree to the amended terms and continued to object to the transfer. Eventually his employment ended. However, there was confusion between LUB and Abellio about his employment status after the transfer, whether he had resigned, been dismissed, or transferred, and who was liable for the termination costs. Mr De Marchi brought unfair dismissal and TUPE-related claims against both companies in the Employment Tribunal.
A preliminary hearing was held to establish how Mr De Marchi’s employment had ended and whether LUB or Abellio was liable for the termination costs, including any unfair dismissal compensation.
The Employment Tribunal held that Mr De Marchi had been dismissed by LUB, which was therefore liable for all termination costs. Appeals by LUB and Mr De Marchi were rejected by the EAT, which has provided useful clarification of how TUPE applies in Mr De Marchi’s situation:
- Where a transfer involves a substantial and materially detrimental change, the employee may choose to treat their contract as having been terminated. This would be a deemed dismissal by the employer, which could be the transferor or the transferee, depending on the timing (Regulation 4(9)). If the employee chooses not to exercise this right, they will transfer, unless they object to the transfer under Regulation 4(7).
- Where an employee objects to being transferred because it would involve a substantial change in working conditions to their material detriment, the objection prevents their contract from transferring to the transferee (Regulation 4(7)).
- In these circumstances, the employee’s contract of employment is automatically terminated, and the employee is treated as having been dismissed by the transferor, even though no actual dismissal has occurred (Regulation 4(8)). Any remedy will therefore lie solely against the transferor.
In this case, the EAT held that Mr De Marchi’s objection to the transfer was reasonable given that the potential change in his working conditions was substantial and detrimental. Accordingly, his employment did not transfer to Abellio, and he was treated as having been dismissed by LUB. All termination costs and any compensation payable as a result of his Tribunal claims would therefore be payable by LUB.
The EAT’s judgement provides helpful clarification of the effect of an employee’s objection under TUPE where the transfer involves a substantial change in working conditions to their material detriment. An employee who objects in these circumstances does not need to communicate unequivocally that they are treating their contract as terminated. Under TUPE, the act of objecting will terminate the contract, and they will be treated as having been dismissed by the transferor, who will be liable for all dismissal costs. As this case illustrates, this means that even if the transferee is responsible for the substantial and detrimental changes, the transferor is still liable for all costs resulting from an employee’s objection, and the employee has no remedy against the transferee. This situation can be addressed by means of appropriate warranties and indemnities in the commercial agreements, depending on the relative bargaining positions of the parties.
