Meter U Ltd v Ackroyd (Meter U Ltd v Hardy)

The term "workforce" in regulation 7(2) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 does not include corporate franchise companies. A change from employing individuals to engaging separate franchise companies may therefore constitute an economic, technical or organisational reason entailing changes in the workforce. Where that change reduces the transferee's employee establishment, dismissals will normally be treated as for redundancy under the Employment Rights Act 1996 and not automatically unfair under TUPE, subject to inquiry into any sham franchise arrangement.

The appeal arises from two Employment Tribunal decisions holding that meter reader employees transferred under TUPE had been automatically unfairly dismissed. The transfers followed service re-tendering and subcontracting to the transferee which operated a long-standing franchise model using limited companies to provide meter reading. The Tribunals found the dismissals to be connected to the transfers and not for an ETO reason entailing changes in the workforce. The transferee appealed, contending that the switch to franchise companies was an ETO reason and that dismissals were redundancies. The central issues were (a) the meaning of "workforce" in regulation 7(2) of TUPE, (b) whether engaging corporate franchisees amounts to a change in the workforce, and (c) whether any franchise arrangements were sham agreements.

(1) The appeals are allowed.

(2) The word "workforce" in Regulation 7(2) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 does not include separate corporate franchise companies. The ordinary meaning of "workforce" denotes people or employees, not companies. (See paras [38]–[46].)

(3) Because corporate franchisees are not part of the transferee's workforce, replacing transferred employees by such franchise companies is, on the facts found, a reduction in the transferee's workforce. That reduction falls within an economic or organisational reason entailing changes in the workforce under Regulation 7(2). (See paras [44], [46]–[49].)

(4) On the factual findings of the Leeds Tribunal, the dismissals of the Ackroyd claimants were for economic and organisational reasons entailing changes in the workforce and therefore to be regarded as dismissals by reason of redundancy under section 139(1)(b)(i) of the Employment Rights Act 1996. The Leeds Tribunal's finding of automatic unfair dismissal is set aside and the matter remitted for determination of fairness under section 98(4). (See paras [45], [51]–[53], [54(2)].)

(5) The Exeter Tribunal did not decide whether the franchise arrangements were a sham. If the franchise arrangements are found not to be a sham, the same legal conclusion applies to the Hardy claimants: their dismissals were for an ETO reason and for redundancy. The Hardy claims are therefore remitted for the tribunal to determine (a) whether the franchise model was a sham and, if not, (b) the fairness of the dismissals under section 98(4). (See paras [48], [52], [54(3)].)

(6) The court accepted and applied the established approach that an employer's plan must have the objective of effecting changes in the workforce for Regulation 7(2) to apply, and followed the reasoning in the relevant authorities while clarifying that changes of status to engagement through corporate entities can amount to a workforce reduction. (See paras [39]–[41], [44].)

(7) Orders: appeals allowed; Ackroyd cases remitted to the Leeds Employment Tribunal to determine fairness under Employment Rights Act 1996 section 98(4); Hardy cases remitted to the Exeter Employment Tribunal to determine whether franchise arrangements were a sham and, if not, to determine fairness under section 98(4). (See para [54].)

• Employment Appeal Tribunal: Appeal from Employment Tribunals in Leeds and Exeter. Judgment allowing appeals and remitting matters to those Tribunals for further determination (see paras [54]).
• Employment Tribunal (Leeds): Held dismissals automatically unfair as not for an ETO reason entailing changes in the workforce. Decision set aside and remitted. (Lower tribunal decision at first instance.)
• Employment Tribunal (Exeter): Held dismissals automatically unfair; remitted for further factual finding on sham and fairness if necessary.