Whose ETO reason?
March 2007
In this article...
The issue of whether a transferor in a TUPE situation can carry out pre-transfer dismissals relying on the transferee’s economic, technical or organisational (‘ETO’) reason has been unclear for too long. This is crucial, however, as a dismissal connected with a TUPE transfer is automatically unfair unless it is justified by an ETO reason. Sarah Lamont looks at Hynd v Armstrong and ors, a recent Court of Session decision which may give some help.
The facts
Mr Hynd was employed by Morison Bishop, a law firm with offices in Glasgow and Edinburgh. It was agreed that the partnership would be dissolved on 31 July 2002 and that a new Edinburgh-based firm called Morisons, and a Glasgow-based firm known as Bishops, would be formed on 1 August 2002.
Mr Hynd was employed as a solicitor specialising in corporate law out of the Glasgow office. As the practice of Bishops was to be mainly property law and litigation, there would be a reduced requirement for corporate lawyers. The Glasgow partners of Morison Bishop anticipated this and selected Mr Hynd for redundancy. He was dismissed on the date the partnership dissolved and prior to the transfer to Bishops of the relevant part of Morison Bishop. The decision was taken by the Glasgow partners on behalf of Morison Bishop, under authority that had been agreed with the other partners in the firm.
Mr Hynd brought unfair dismissal proceedings against both the former partners of Morison Bishop and the partners of Bishops. It was agreed that there had been a transfer of part of an undertaking by Morison Bishop to Bishops within the meaning of the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) (now replaced by TUPE 2006).
Mr Hynd argued that he had been automatically unfairly dismissed because the transfer was the reason for his dismissal. The respondents argued that Mr Hynd had been dismissed for an ETO reason, namely redundancy, so that the dismissal was fair.
The tribunal held that Mr Hynd was dismissed by Morison Bishop in anticipation of the transfer to Bishops, because the prospective partners in Bishops had decided, for ETO reasons, that Mr Hynd would not be required for the future conduct of the business following the transfer. Therefore, the dismissal was fair.
Mr Hynd’s appeal to the EAT was refused and he appealed to the Court of Session.
The decision
The Court of Session (the Scottish equivalent of the Court of Appeal) upheld the appeal. In deciding to dismiss, Morison Bishop should only have taken into account its own requirements for employees and not the fact that its employees might be surplus to the requirements of the transferee firm, Bishops. Since the dismissal had been in connection with the TUPE transfer, and was not justified by an ETO reason, it was automatically unfair.What does it mean for me?
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Where an employee is dismissed by the transferor prior to the transfer, the reason for the dismissal must relate to the transferor's future conduct of its business in order to be an ETO reason |
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That will never be the case where, as here, the transferor has no intention of continuing the business after the transfer |
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Often this situation arises where the transferor carries out dismissals at the request of the transferee, who does not want to take on the employees concerned, usually because it will leave him overstaffed and he does not want to carry out a redundancy exercise after the transfer |
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Where there are pre-transfer dismissals in connection with the transfer and there is no ETO reason, liability for unfair dismissal will pass to the transferee under TUPE |
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It may be appropriate to deal with the risk of unfair dismissal by way of indemnities where possible |
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Although this is a case decided under TUPE 1981, it would apply equally to TUPE 2006, which replaced and amended the old version of the Regulations |
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As a Court of Session case, this decision is not strictly binding on tribunals in England and Wales or the EAT sitting in England, but it is likely to be followed by them in practice. |
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