TUPE: Consequences of employee objecting to the transfer

Background

The general rule is that in the event of the transfer of a business or a service provision change to which TUPE applies, relevant employees of the transferor will automatically become employees of the transferee on their existing terms and conditions. However, this is subject to certain exceptions:

• If an employee objects to the transfer, their employment will not transfer to the transferee and will be treated as terminated with effect from the transfer date. In most cases, this is deemed not to be a dismissal and therefore the employee cannot make a claim for unfair dismissal.
• However, if the transfer would involve a substantial change in the employee’s working conditions to their material detriment, they have the right to treat their employment as having been terminated and their employer will be deemed to have dismissed them. Depending on the circumstances, the employer can be either the transferor or the transferee (this is dependent on whether the date of termination pre- or post-dates the relevant transfer).
• The employee also retains their right to resign without notice and claim constructive dismissal in the event of a repudiatory breach of contract by their employer.

Facts

Mr De Marchi had worked as a bus driver for London United Busways Ltd (LUB) since 2003. His bus route operated from the Stamford Brook garage, which was a 15 minute walk from his home, and he did not own a car.

In 2019, LUB lost the contract for operating Mr De Marchi’s bus route to Abellio London Limited (AL). It was agreed between LUB and AL that TUPE applied and that all drivers assigned to the route would transfer to AL unless they objected. The transfer was due to take place in November 2019, from which time AL would begin operating the route from its Battersea garage.

In August 2019, LUB held meetings with the affected drivers and explained that they could choose between three options:

• Transfer to AL, which would require them to move from Stamford Brook to Battersea. (For Mr De Marchi, this would increase his commute time by approximately one hour each way).
• Object to the transfer, sign a new contract with LUB under which they may be able to remain at Stamford Brook, but they had to agree to increase their maximum time on duty from 9 to 10 hours.
• Resign, if they did not wish to transfer to AL or accept a new contract with LUB.

Mr De Marchi wrote to LUB stating that he did not accept any of these options, and requested that LUB make him redundant. There followed an exchange of correspondence in which LUB sought to persuade Mr De Marchi to accept one of its proposed options, but Mr De Marchi refused. LUB then took the position that Mr De Marchi’s employment with it would end on the date of the transfer.

Mr De Marchi brought an unfair dismissal claim against both LUB and AL. The employment tribunal found that Mr De Marchi had objected to the transfer, which would ordinarily mean that his employment terminated and would not be treated as a dismissal. However, the tribunal also found that a requirement to move from Stamford Brook to Battersea would involve a substantial change in working conditions to Mr De Marchi’s material detriment, such that he had the right to treat his employment as having been terminated and himself as having been dismissed. Since Mr De Marchi had expressly not treated his employment with LUB as terminated in this way, the tribunal had to determine what effect this had on Mr De Marchi’s employment. It concluded that Mr De Marchi had been dismissed by LUB and that his only potential claim was against LUB, not against AL.

On appeal, the EAT determined that the tribunal had been correct to find that Mr De Marchi had been dismissed by LUB. The EAT explained that:

• Where a TUPE transfer would involve a substantial change in working conditions to the employee’s material detriment, the employee has the right to treat their contract as having been terminated. If the employee chooses to exercise that right, they are treated as having been dismissed by their employer. If the employee chooses not to exercise that right, they will transfer to the transferee unless they have objected to doing so.
• Where an employee objects to a TUPE transfer but does not treat their contract as having been terminated when entitled to do so, the effect of the objection is to prevent the transfer of the employee’s contract to the transferee.
• In those circumstances, although the employee has chosen not to treat their contract as terminated, the effect of the regulations is that the transfer itself operates to terminate the employee’s contract of employment with the transferor, and the transferor is thus to be treated as having dismissed the employee. The employee may therefore be able to bring claims against the transferor, but not against the transferee.

The key facts in this case are that the transfer of employment involved a substantial change in working conditions to the material detriment of the employee (the change in commute time). Had there been no changes to working conditions, and the employee objected to the transfer, his employment would have terminated upon transfer but this would not be deemed a dismissal by the transferor. 

It is worth noting that the decision in this case was based on the EAT’s view that the EU Acquired Rights Directive (ARD), which TUPE was intended to implement, requires that an employee who objects to becoming employed by the transferee because the transfer would involve a substantial change in working conditions to their material detriment must have a remedy. The events in this case occurred prior to the end of the post-Brexit transition period, and the EAT was therefore required to interpret TUPE compatibly with the ARD.

The question of the fairness of Mr De Marchi’s dismissal by LUB now falls to be determined by the employment tribunal at a further hearing.

What does this mean for employers?

The operation of TUPE is notoriously complex, and this decision provides helpful clarity on the effect of an employee objecting to a transfer in circumstances where the transfer would involve a substantial change in working conditions to their material detriment, such that they would be entitled to choose to treat their employment as terminated – even if they do not actually do so. The transferor in these circumstances will face potential liability for any claims the employee might bring. Since any change in working conditions post-transfer would only come about at the behest of the transferee, the transferor may wish to negotiate indemnities from the transferee in respect of such liability so that it is protected in the event of any disputes arising based on substantial changes to transferring employees’ working conditions.

London United Busways v (1) De Marchi (2) Abellio London Ltd