‘ETO’ reasons must entail changes in workforce

Facts of the case

The case concerned the dismissals of a group of employees who transferred from the London Borough of Barnet to Capita Business Services Ltd (“Capita”) when Barnet decided to outsource various services, including pensions, benefits and HR-related services. 30 employees brought claims alleging that they had been automatically unfairly dismissed under TUPE, of which nine were selected as lead cases in the employment tribunal.

It was common ground that the outsourcing had amounted to a “service provision change”, so TUPE applied. As the employees qualified for the special protection against dismissal that TUPE affords, the question turned to what was the reason for the dismissals.

Under TUPE, if the sole or principal reason for dismissing an employee post-transfer is the transfer itself, that dismissal will be automatically unfair (although note that the employee still needs two years’ service to bring an unfair dismissal claim). However, where the sole or principal reason for the dismissal is an ETO reason - an “economic, technical or organisational reason entailing changes in the workforce” the dismissal will be potentially fair (subject to normal principles regarding “reasonableness” of dismissal).

The question of whether there is an ETO reason is a two-limb test. First, the employer must establish an economic, technical or organisational reason, which may be relatively straightforward. The employer could rely, for example, on cost-saving requirements (economic), automation of processes (technical) or restructuring needs due to post-transfer overstaffing (organisational). In all cases, however, the reason must also “entail changes in the workforce”.

Case law has established that “changes in the workforce” means a change in the number of employees or in the functions which they perform (Delabole Slate Co Ltd v Berriman [1985] IRLR 305). Since amendments to TUPE in 2014, it is also now possible to rely on the relocation of roles as something that entails changes in the workforce. 

The EAT’s decision

In this case, Capita’s argument that it had an ETO reason was successful, save in relation to two employees. The EAT ruled that:

• Seven of the employees had been dismissed because Capita had split their job functions and redistributed those functions across several different sites. This was therefore an ETO reason because it entailed changes in the job functions of the workforce.
• In relation to the other two employees, the reason for dismissal was the relocation of their roles with no significant changes to their functions. As the transfer occurred prior to the 2014 changes to TUPE, Capita could not rely on relocation to meet the “changes in the workforce” limb of the test. These two employees had therefore been automatically unfairly dismissed.

Implications

While the EAT’s judgment does not say much that is new - and is already “behind the times” on the relocation point - it is a helpful reminder of the two elements needed to establish an ETO defence. 

With careful planning and detailed analysis of the reason for the dismissal, employers can often navigate this issue and achieve a fair dismissal notwithstanding the protection for employees that TUPE affords. Had the transfer to Capita taken place after 31 January 2014, relocation would have qualified as a change in the workforce and it is likely that none of the dismissals would have been automatically unfair.

Osborne and others v Capita Business Services Ltd and others UKEAT/0048/16 – judgment available here