Hazel v Manchester College

The Court of Appeal dismissed the employer's appeal against findings of automatic unfair dismissal and against the Employment Tribunal's re-engagement remedy. The key legal principles applied were the Transfer of Undertakings (Protection of Employment) Regulations 2006 (in particular reg. 7(1) and reg. 4) and the established domestic and European authorities on when a dismissal is "for a reason connected with the transfer" and when an economic, technical or organisational (ETO) reason "entails changes in the workforce". The court held that the correct approach is (i) identify the principal reason for the dismissal, (ii) decide whether that reason is the transfer itself or a reason connected with the transfer, and (iii) if it is connected, decide whether it is an ETO reason that entails changes in the workforce. Applying those steps, the tribunal's finding that the claimants were dismissed because they refused harmonisation of pay (not because of redundancies or redeployment) meant the ETO defence did not apply and the dismissals were automatically unfair. The Court also held that the Employment Tribunal was entitled to order re-engagement on pre-dismissal pay and terms (subject to practicability), and that such an order is an appropriate remedy under sections 112–116 of the Employment Rights Act 1996.

This case concerned two lecturers who transferred to the appellant college under TUPE after the college successfully bid to provide offender learning services. The college implemented a cost-saving package in 2010 that included redundancies and the harmonisation of disparate terms and conditions by offering transferred staff new contracts on a single pay scale. The claimants refused the pay reductions, were given notices of dismissal, subsequently accepted the new contracts "without prejudice" and continued to work at the lower pay rate, and then brought unfair dismissal claims.

The Employment Tribunal (Ashford) found that the principal reason for dismissal was the claimants' refusal to accept harmonised pay terms and that, although the harmonisation formed part of a wider package that included redundancies, the claimants themselves were not dismissed for a reason that "entailed changes in the workforce". The ET therefore held the dismissals to be automatically unfair under reg. 7(1) of TUPE and, on remedy, declined reinstatement but made re-engagement orders under sections 112 and 115 preserving pre-dismissal pay (with pay frozen until the new scale caught up) and awarding arrears for the intervening period. The Employment Appeal Tribunal dismissed the employer's appeals against liability and remedy.

On further appeal to the Court of Appeal the employer argued that the ET had erred in focusing on the immediate reason for dismissal and ignoring the broader corporate plan which included redundancies, contending that harmonisation formed part of an ETO reason that did entail workforce changes; it also argued it was not practicable for the ET to make re-engagement orders where the claimants had accepted new contracts and continued to work.

The Court of Appeal (Underhill LJ, Kitchin LJ and Moore-Bick LJ) dismissed the appeal. The court explained the correct analytical steps (identify principal reason; decide if transfer or connected; decide if ETO entailing workforce changes) and held that the ET was entitled to find that the claimants were dismissed solely for refusing the pay harmonisation and not for redundancies or redeployment. On remedy the court held that dismissal (termination of the contract) is distinct from the continued employment relationship and that a tribunal can make a re-engagement order even where the claimant continued to work under a subsequent contract; it accepted the ET's findings that re-engagement on the pre-dismissal pay was practicable and that equal pay concerns and possible workplace discontent did not preclude the order. The court emphasised the policy of TUPE protecting transferred employees' terms and that dismissal-and-rehire remains available to employers but may attract compensation if automatically unfair.

Appeal dismissed. The Court of Appeal upheld the Employment Tribunal and Employment Appeal Tribunal decisions. It held that the principal reason for the claimants' dismissals was their refusal to accept harmonised pay (not the redundancy programme) so the ETO defence did not apply and the dismissals were automatically unfair under reg. 7(1) TUPE. The Court also held that the Employment Tribunal had jurisdiction and was entitled to order re-engagement on pre-dismissal pay where practicable, and that its findings as to practicability were open on the evidence.

Employment Tribunal (Ashford), judgment dated 16 September 2011 (heard 26-27 July 2011) → Employment Appeal Tribunal (Judge McMullen QC, UKEAT0642/11 & 0136/12), hearing 9 July 2012, appeals dismissed → Court of Appeal ([2014] EWCA Civ 72) hearing 5 February 2014, appeal dismissed.