Removal of outdated contractual entitlement following transfer was not void

Facts of the case

The transferring employees were electricians, originally employed by Birmingham City Council (“BCC”). Their employment had been transferred several times and they ultimately became employed by Mears Ltd (“Mears”).

While at BCC, the electricians had been in receipt of an Electricians Travel Time Allowance (“ETTA”). This had existed since 1958 and was paid in order to compensate electricians for loss of a productivity bonus caused by the need to travel to different depots. At the time the ETTA was introduced BCC had over 30 depots across Birmingham, but only one of those remained at the time relevant to this claim. Productivity bonuses had also been phased out at BCC.

Initially, ETTA was paid following the employees submitting a claim form, which would be signed off by their line manager. Over time, however, it was accepted that ETTA might have been paid as a matter of routine without submission of such a form.

The transferor employer immediately before Mears had questioned the continued need for ETTA, but the then employer wanted to avoid a dispute with trade unions about this at a time when they were negotiating an extension to the contract. It appears ETTA payments continued because it was believed there was a legal requirement to do so.

Mears questioned the allowance when the contract was transferred to it, but the transferor’s managers were unable definitively to explain the continuing basis for payment of ETTA. On that basis, as of the date of transfer in April 2008, Mears decided to stop making the payments.

A grievance raised by the trade union on the employees’ behalf was not upheld, and litigation ensued. The employment tribunal (“ET”) and the EAT decided there was a contractual entitlement to the ETTA, and so there had been an unlawful deduction from wages (Mears Ltd v Salt and others UKEAT/0522/11).

After receiving the outcome, Mears wrote to the employees stating that the contractual entitlement would cease as the allowance was “inappropriate”, “fails to support…business needs going forward” and was “wholly unfair on the remainder of the workforce who operate in exactly the same way”.

The employees started another ET claim. They contended that the variation of the contract was for a reason connected to the transfer (the pre-2014 formulation of regulation 7 of TUPE being in force at the relevant time), and so was void. The ET found that the reason for the change was Mears’ belief that the payment was outdated and unjustified, and the sole or principal reason was not the transfer. The employees appealed to the EAT.

The EAT’s decision

The employees’ main arguments on appeal were as follows:

• The reason for the variation was the Salt litigation or the belief that the ETTA was now outdated. It would be perverse for the ET to find that the Salt litigation, which was a claim brought under TUPE, was not a reason connected for the transfer.
• The ET had failed to take into account Mears’ clear intent of harmonisation, documented in its letter by using phrases such as “unfair on the remainder of the workforce who operate in exactly the same way”. The decision to stop payment was taken at the point transfer, so must be connected to it.
• The employees challenged the ET’s reasons for concluding that submission of a claim form was a prerequisite to entitlement to ETTA. They argued this was not Mears’ case in the Salt litigation, and Mears’ predecessors had not insisted on submission of a form before making payment.

The EAT said that the essential question in this case was what had been the reason for the variation, which was a question of fact. It concluded that the Salt litigation was the context of the decision, but not the reason for it. That litigation determined the contractual entitlement to ETTA regardless of the transfer. The belief that the ETTA was outdated and unjustified had not arisen purely on transfer. Rather, it was a pre-existing belief and had been questioned by the transferor’s managers previously.

The EAT also considered that the wording in the letter had been mischaracterised. It was not a reference to harmonisation but highlighting a need for fairness among a workforce group, regardless of TUPE. Finally, the EAT ruled that if the employees wished to object to Mears’ change in position from the Salt litigation – namely, the requirement for forms to be submitted – this should have been raised before the ET. It could not be raised at the EAT for the first time.

Implications

This is a relatively rare example of contractual changes following a TUPE transfer being permissible, albeit in the context of the specific circumstances of this case. It is clear from the EAT’s judgment that the mere fact of a TUPE transfer and a change occurring shortly afterwards is not in itself sufficient for a claim to succeed. A deeper delve into the true reason behind the change is required in every case, and this may be evidenced by matters that occurred prior to the transfer taking place.

Note that, while the EAT’s decision is based on the 2006 version of TUPE prior to the amendments in 2014, the result would most likely have been exactly the same under the current legislation.

Tabberer and others v Mears Ltd and others – judgment available here