Meter U Ltd v Hardy & Ors

For the purposes of Regulation 7(2) of the Transfer of Undertakings (Protection of Employment) Regulations 2006, a transferee’s workforce does not include corporate franchisees or their employees. A genuine change from employing transferred staff to using independent franchise companies can therefore reduce the transferee’s workforce.

Where that change forms part of an established business model which reduces costs and enables competitive tendering, it may constitute an economic or organisational reason entailing changes in the workforce. The dismissals are then treated as dismissals for redundancy, subject to the statutory assessment of fairness. A tribunal cannot avoid that conclusion by treating a genuine corporate franchise arrangement as part of the transferee’s workforce.

The appellant provided meter-reading services through corporate franchisees and did not employ meter readers directly. Following service provision changes, meter readers transferred to it under TUPE from G4S Utility Services (UK) Ltd in the Hardy claims and from N Power Yorkshire Ltd in the Ackroyd claims. The appellant later dismissed the transferred employees and offered them an opportunity to establish franchise companies.

The Exeter and Leeds Employment Tribunals held that the dismissals were automatically unfair. They concluded that the appellant had not established an economic, technical or organisational reason entailing changes in the workforce. The Leeds Tribunal found that the franchise model was genuine. The Exeter Tribunal left the alleged sham issue unresolved.

The central issue was whether the appellant’s workforce included corporate franchisees, their personnel, or both, for Regulation 7(2) of the Transfer of Undertakings (Protection of Employment) Regulations 2006.

1. Appeals allowed. The Employment Tribunals’ findings of automatic unfair dismissal were set aside. Their conclusion that the transferee’s workforce included corporate franchisees was erroneous.

2. “Workforce” is undefined in TUPE and the Directive, but its ordinary meaning concerns people, workers or employees. A limited company has a separate legal identity and is not itself a person, worker or employee. Employees or other personnel engaged by a corporate franchisee belong to that franchisee’s workforce, not that of the company contracting with it.

3. The reasoning in Berriman v Delabole Slate Ltd [1985] ICR 546 supported the requirement that an ETO plan must seek changes in the workforce. The EAT added that changes in employee numbers or duties are not necessarily the only possible workforce changes, although it was unnecessary to decide whether a change of status from employee to independent contractor would itself suffice.

4. On the Leeds Tribunal’s unchallenged finding that the franchise model was genuine, the replacement of employee meter readers by corporate franchisees reduced the appellant’s workforce. Its established franchise model lowered costs and enabled it to tender competitively. The only lawful conclusion was that the Ackroyd dismissals were for economic and organisational reasons entailing workforce changes under Regulation 7.

5. Unless the franchise arrangements were found to be a sham, the same conclusion applied in the Hardy claims. The appellant required franchisees to perform meter-reading work, not former employees. The dismissals were therefore to be regarded as redundancies under Employment Rights Act 1996, section 139(1)(b)(i), read with TUPE Regulation 7(3)(a).

6. Fairness under Employment Rights Act 1996, section 98(4) remained for the Employment Tribunals. The Ackroyd claims were remitted for that issue. The Hardy claims were remitted first to determine the sham allegation and, if the arrangement was genuine, to determine fairness.

• Employment Appeal Tribunal: Appeals allowed. The findings of automatic unfair dismissal were set aside and the claims remitted.
• Employment Tribunal, Leeds: By a judgment sent on 23 February 2011, the Ackroyd claimants were held automatically unfairly dismissed.
• Employment Tribunal, Exeter: By a judgment sent on 27 January 2011, the Hardy claimants were held automatically unfairly dismissed.