Sep 262011
 

The Employment Appeal Tribunal (EAT) has held that an employer who sought to vary terms of employment by making an offer to ‘buy-out’ certain terms, did not unfairly dismiss employees who refused that offer when it dismissed and re-engaged them on terms which did not include the original buy-out offer.

In the case of Mrs Slade and others v TNT (UK) Limited (TNT), Mrs Slade was one of 4 test cases being heard from a total of 183 claims lodged against TNT for unfair dismissal.

As a result of the recession TNT’s profits had fallen and they needed to reduce their costs. They made 300 staff redundant and closed centres in Cardiff, Liverpool and Teeside. As part of this cost cutting programme TNT decided in 2009 to discontinue the ‘end of sort’ (EOS) bonus. This bonus had been introduced by TNT in 1983. However it was discontinued for new starters in August 2005 who instead received an attendance bonus which was lower in value. TNT now wanted to discontinue the EOS bonus for the 470 employees who were still entitled to receive it.

TNT entered into negotiations with union and other employee representatives and over the course of a series of meetings TNT proposed to pay a lump sum to those entitled to receive the bonus in return for the employees’ agreement to vary their terms and conditions of employment. The proposals were the subject of 3 workforce ballots but no agreement was reached. A final offer was made to the employees in May 2009 and TNT wrote to the workforce making it clear that if the final offer was not accepted in a forthcoming ballot, then employees would be issued with contractual notice to terminate their contracts of employment. The final offer was rejected and on 5 June 2009 TNT issued contractual notice to terminate their contracts of employment to those employees represented in the negotiations and who had rejected the final offer. Each employee was offered re-engagement on their existing terms but excluding any entitlement to the EOS bonus or the lump sum buy-out payment.

The affected employees accepted the offer of re-engagement under protest. A majority of those employees settled their prospective claims of unfair dismissal as a result of the intervention of ACAS. The remaining 183 employees lodged unfair dismissal claims. The Employment Tribunal dismissed their claims holding that their dismissals were fair. The employees appealed to the EAT.

The EAT rejected the appeal and upheld the Employment Tribunal’s decision. The EAT confirmed that the Employment Tribunal had adopted the correct approach in deciding whether a dismissal for some other substantial reason (SOSR) was fair or unfair. In particular it found that TNT had a sound business reason for wanting to vary the contractual terms and it was a substantial (as opposed to a trivial) reason. TNT had attempted through negotiation to secure the agreement of the workforce and there was no evidence that the employee representative’s proposals had been ignored by them. The Employment Tribunal had also acknowledged that the loss of the EOS bonus represented an 18% loss of income to the affected employees and accepted this would cause them ‘difficulty and hardship’.

The EAT also held that TNT acted within the band of reasonable responses to not offer the buy-out sum in its terms of re-engagement. The EAT confirmed that the sum had been offered to secure the employees’ agreement and thus remove the risks of TNT facing unfair dismissal claims. As the employees did not accept the offer, TNT had to dismiss the employees which thereby exposed them to Employment Tribunal litigation. In other words TNT had not received the benefit which the lump sum buy-out offer had sought to achieve.

Implications

This is a welcome decision for employers as it provides some leverage in negotiations to vary contractual terms by confirming that any offers made to secure the employees’ agreement will not necessarily be included in the terms of re-engagement.

Employers who seek to vary employees’ terms and conditions of employment by removing entitlement to a bonus or benefit will often offer the affected employees a sum of money (or other financial incentive e.g. increased annual leave) in return for their agreement to the variation to their employment contracts. If no agreement can be reached, employers can choose to dismiss the employees and re-engage them on the varied terms of employment.

In this case the EAT held that the terms of re-engagement do not need to include the original ‘offer’ because the purpose of that offer was to secure the employees’ agreement without having to dismiss them and thus expose the employer to an unfair dismissal claim. Key points of the EAT decision:

  • The employer’s decision not to offer re-engagement on terms which included the buy-out offer was reasonable and did not render the dismissal unfair.
  • The employer had tried to secure the employees’ agreement through negotiation with employee representatives in ‘many meetings’ over several months and therefore acted reasonably.
  • The employees were warned that if they did not accept the offer their employment contracts would be terminated on notice.