Ultimately, the purpose of TUPE is to protect employees’ rights when a business changes hands or there is a change in service provider. If TUPE applies, employees assigned to the services will transfer to the new provider automatically on their existing terms and conditions.

But what protection does an employee have if they object to a transfer because they would be negatively impacted? We look at what TUPE says and the clarification provided by the EAT.

What does TUPE say?

TUPE sets out that:

• If employees do not want to transfer, they are able to object under regulation 4(7). Employees must inform either the transferor or the transferee that they wish to object, but they do not need to provide any explanation why.
  If an employee does object, then they will not transfer to the new employer. Their employment is deemed to be terminated at the transfer date and they are not considered to be dismissed by the transferor. This is set out in regulation 4(8). 
• Where a transfer involves (or would involve) a substantial change to their terms and conditions which is to their material detriment, an employee has the right to treat their contract as terminated. This is set out in regulation 4(9). In these circumstances, the employee is treated as having been dismissed by “the employer”. 
• Employees are able to resign in response to a repudiatory breach of contract by their employer (regulation 4(11)). They would also be considered to have been dismissed by “the employer”.

It is a critical distinction whether the employee is deemed to have been dismissed or not. For example, an employee would only be entitled to claim for statutory redundancy pay if they have been dismissed. Employees who are dismissed can also claim for automatic unfair dismissal (provided they have sufficient length of service).

TUPE itself doesn’t cater for a scenario where an employee has objected because of detrimental changes proposed on transfer (engaging both regulation 4(7) and 4(9)). Some guidance from the appeal Tribunal has been welcomed.

What happened here? 

The claimant, Mr De Marchi, was employed as a bus driver by London United Busways Ltd. Busways operated eight garages across London and Mr De Marchi’s bus route operated from a garage in Stamford Brook, which was a 15-minute walk from his home. Mr De Marchi did not own a car and walked to and from work.

Following a retendering exercise in 2019, Busways lost the contract for this route and Abellio London Ltd won the contract. Both parties accepted that the transfer of the service would be a relevant transfer under TUPE. As Mr De Marchi was assigned to this bus route, he was in scope to transfer to Abellio, along with 58 other drivers assigned to that route. 

The affected drivers were given three options:  

1. transfer with the route to Abellio, who operated from a garage in Battersea;
2. object to the transfer and sign a new contract with Busways. This would mean staying at the original location (subject to availability) but agreeing to increase their maximum time on duty from 9 hours to 10 hours; or
3. resign. 

Mr De Marchi was told that if he did not choose one of these options, Busways would assume he wanted to transfer. Mr De Marchi rejected all the options on the basis that Abellio’s garage would add over an hourto his commute. Mr De Marchi requested that he be made redundant instead. Busways rejected his request, clarifying that he could object to the transfer but that this would not give an entitlement to statutory redundancy pay or any notice pay.

Mr De Marchi continued to clarify that his intention was not to resign but he also did not want to transfer. Eventually he was treated by Busways as having transferred. Mr De Marchi continued to assert he would not transfer and subsequently sent sick notes to Busways (which were forwarded to Abellio). 

When Abellio got in touch with Mr De Marchi, he told them he had objected to the transfer. Eventually he was dismissed by Abellio on 3 February 2020 for failing to engage with their attempts to discuss his employment.

Mr De Marchi brought claims against both Busway and Abellio for unfair dismissal (and related TUPE claims).

What did the Employment Tribunal think? 

At a preliminary hearing, the Employment Tribunal found that Mr De Marchi had objected to the transfer. This meant he had not transferred and his employment was terminated. 

However, the Tribunal also considered that the change of location to Abellio’s garage amounted to a substantial change to Mr De Marchi’s terms and conditions. They also thought it was reasonable for Mr De Marchi to consider this to be to his material detriment. This engaged regulation 4(9). 

The Tribunal found Mr De Marchi had not treated his contract his terminated. He’d continued sending sick notes to HR and requesting sick pay from Busways. This meant his contract was still in force until either he was dismissed or Mr De Marchi chose to treat his contract as having been terminated. When Busways tried to transfer his employment to Abellio, the Tribunal considered this to be a dismissal. 

Both Busways and Mr De Marchi appealed. There was no appeal of the Tribunal’s findings that there would have been a substantial change in working conditions.

Did the Employment Appeal Tribunal agree?

Yes, although their reasoning differed. The EAT explained that:

• It is the employee’s choice as to whether or not they treat their contract as terminated where the transfer involves a substantial change in working conditions to the material detriment of the employee. If the employee:
  
  • elects to exercise this right, they are treated as having been dismissed by “the employer”. Whether the employer is the transferor or transferee is the dismissing employer depends on when the employee invoked their right. 
  • does not exercise this right, they transfer to the transferee unless they have objected to the transfer.

• If an employee objects to being employed by the transferee, this will prevent them from transferring. So they will only ever be employed by the transferor.
• Where regulation 4(9) also applies, and the employee has not elected to treat their contract as terminated, the transfer will still be prevented if an employee has objected. But, in these circumstances, the contract is considered to have terminated because of the change in working conditions. This means the employee is treated as having been dismissed by the transferor. 

Mr De Marchi’s contract of employment did not therefore transfer to Abellio. As Mr De Marchi had objected to the transfer, his contract with Busways terminated at the point of transfer. As his objection was based on the change to his commuting time (which was accepted to be a substantial change to his material detriment), this was also deemed to be a dismissal.

Any remedy for the dismissal was against Busways alone. 

Practical takeaways

This is a helpful decision to demonstrate how regulation 4(7) and 4(9) of TUPE work together. 

This decision is a reminder that where an employee believes there would a substantial change to their terms which is to their material detriment, it is at their discretion whether to treat the contract as terminated or not. 

An employee who objects to a transfer does not need to communicate that they are treating their contract as terminated under regulation 4(9). Where the circumstances envisaged by regulation 4(9) exist, the employee’s objection alone is sufficient to terminate the contract, and for them to be treated as dismissed by the transferor, who will be liable for the dismissal. 

There are a number of practical takeaways:

• Understanding employee objections: While employees are not required to explain why they are objecting or explicitly state that they believe there is a substantial change to their detriment, the transferor or transferee may want to explore the reasons behind any objection.

If the transferee is proposing substantial changes in working conditions (such as increased commuting times), it is possible the transferor could be on the hook for dismissal costs, such as redundancy payments. If a transferor is aware that negative proposed changes are driving an employee’s objection, they may want to seek appropriate indemnities in their commercial terms with the client.

• Commercial contracts: Effective communication between the transferor and transferee before the transfer can help flush out any issues prior to any transfer. Both parties should seek to reach an agreement on whether TUPE applies before the transfer to avoid any employees being left without an employer due to misunderstandings or disputes over whether they transfer. Clear commercial agreements are recommended to mitigate risks and ensure a smooth transition, and of course to apportion liability as desired. 
• Managing substantial changes: If a transfer does involve a substantial change in working conditions, transferees should assess the potential impact on employees and consider ways to mitigate any material detriment. This includes evaluating changes to an employee’s place of work, which can significantly affect routines and commute times. Engaging in meaningful consultation with employees can help address concerns and explore alternatives. 

Finally, it is worth noting that this case was decided before the end of the post-Brexit transition period, where cases were interpreted in line with EU directives. The EAT’s view was that the Acquired Rights Directive (which TUPE implements) required an employee to have a remedy in this scenario. Now that appeal tribunals do not need to interpret cases in line with EU directives, it is possible a different decision could be reached on the same facts.

Getting in a TUPE tangle? Contact our team for support. 

London United Busways Limited v (1) Mr V De Marchi and (2) Abellio London Limited - download the full judgment here.