UK: TUPE indemnities may need to be reviewed in light of EAT ruling on TUPE objectors

A recent EAT ruling increases the risk of TUPE transferors facing a dismissal claim from an employee who objects to the transfer.  Parties to a transfer will need to apportion the risk appropriately in contractual indemnities.

TUPE provides that, where an employee objects pre-transfer: (i) they do not transfer to the transferor; (ii) their employment is deemed terminated on the transfer date; and (iii) they are not treated as dismissed (and therefore do not have dismissal claims) – regulation 4(7) and (8).  However, where the transfer involves or would involve a substantial change to the employee's terms and conditions to their material detriment, an employee can choose to treat their contract as terminated;  in this situation they are treated as having been dismissed by the employer (the transferor, if this occurs pre-transfer) – regulation 4(9). 

The case of London United Busways Ltd v De Marchi concerned the situation where an employee formally 'objected' to the transfer  because of proposed detrimental changes to their terms (involving a lengthier commute).  However, rather than choosing to treat their contract as terminated under regulation 4(9), the employee made clear that they did not wish to resign and contended that their employment with the transferor continued after the transfer on their current terms (with the hope of being made redundant by the transferor). 

The EAT confirmed that it is not open to an employee to object and remain employed by the transferor;  the objection serves to bring the contract to an end on the transfer date.  However, where the objection is based on a proposed change to the employee's material detriment (even if the employee has not clearly stated this at the time), the employee will be treated as dismissed (regardless of the employee not having sought to treat their contract as terminated pursuant to regulation 4(9)) and will potentially have dismissal claims against the transferor.  The EAT considered that TUPE had to be construed to provide a remedy in this situation in order to comply with the Acquired Rights Directive, given the facts arose pre-Brexit;  it is possible that a tribunal could reach a different conclusion on a post-Brexit scenario.

The ruling means that, where the transferee is proposing negative changes to terms, it will be important for the transferor to be live to the possibility of dismissal claims from objectors, as well as from those that expressly resign under regulation 4(9), and to negotiate appropriate indemnities.