The recent Employment Appeal Tribunal ruling against Great Ormond Street Hospital, where 80 cleaners successfully argued that delay in receiving NHS Agenda for Change pay after a TUPE transfer amounted to indirect race discrimination, highlights important risks for employers managing terms and conditions post transfer.
What happened?
The Claimants were a group of 80 cleaners who are predominantly black or from ethnic minorities, and were originally employed by Outsourced Client Solutions (‘OCS’). OCS had a contract with Great Ormond Street Hospital for Children NHS Foundation Trust (the ‘Trust’) to provide cleaning services at the Trust’s premises. The Trust also directly employed its own cleaners. The cleaners directly employed by the Trust were paid at more generous Agenda for Change (AfC) rates (a standard NHS wide pay structure), whilst the cleaners from OCS were paid at a lower rate.
The Trust later transferred the Claimants, along with a number of other employees of OCS, in house via TUPE, which brought their employment under the Trust. The Claimants remained on lower pay and benefits to their colleagues who were paid AfC rates.
After the transfer, the Claimants from OCS remained on the lower pay rates pending consultation around how to harmonise pay. The result of this consultation led to many staff moving from the lower pay rates to the higher AfC rates.
The Claimants brought claims for indirect race discrimination on the basis that they should have received AfC pay rates from Day 1 of the TUPE transfer.
What does TUPE require?
Under Regulation 4(1) of TUPE, the employment contracts of employees assigned to an organised grouping of resources or employees do not terminate upon a relevant transfer. Instead, they automatically transfer to the new employer on their existing terms and conditions. There is no obligation under TUPE to harmonise terms and conditions of transferring employees with the transferee’s existing employees. However, all employees with a relevant protected characteristic are protected from indirect discrimination under the Equality Act 2010.
Under TUPE, all accrued rights, powers, duties and liabilities under or in relation to the transferring employees’ contracts pass to the transferee. Therefore, the Trust was responsible for the terms and conditions of onboarded staff even where they were originally set by OCS, or by previous contractors whose terms and conditions themselves were inherited by OCS.
Key legal findings from the Employment Appeal Tribunal (EAT)
The EAT held that the Trust had indirectly discriminated against the Claimants by applying a ‘policy, criterion or practice’ (PCP) that access to AfC pay was dependent on not having transferred from an outside contractor.
The Employment Appeal Tribunal found that the PCP disadvantaged the Claimants (78% of whom were black or from an ethnic minority) compared to the directly employed workforce on AfC terms, 51% of whom were black or from an ethnic minority). Accordingly, this PCP placed the Claimants, who were largely black or from an ethnic minority at a particular disadvantage compared to Trust employees, a significantly smaller proportion of whom were black or from an ethnic minority.
The Trust failed to justify the PCP. Its argument that TUPE required it to maintain existing terms was rejected, as the transferred contracts allowed for variation to AfC terms. Consequently, given the absence of any objective justification for the PCP, it was found to be indirectly discriminatory and therefore unlawful under the Equality Act.
What this means for employers preparing for a TUPE transfer
When preparing for a TUPE transfer, where the transferring employees’ terms and conditions are less favourable than the existing employees’ terms and conditions, employers will need consider the racial and ethnic profile of the transferring employees (with reference to protected characteristics) in comparison with that of any existing employees doing the same work.
As information related to the workforce composition goes beyond what is required as part of employee liability information under TUPE, contractual provisions may need to amended to include relevant information where this is available, to enable early planning on remedial actions, and to avoid later disputes.
In the Alpha Anne case the relevant protected characteristic was race, but the same reasoning could equally apply to other protected characteristics, such as sex where a largely female workforce on less generous terms is due to transfer under TUPE and they can identify more generously paid male comparators who undertake the same work or work of equal value to them.
Notably in relation to equal pay claims, the defence of material factor applies, and one such material factor can be the fact of a TUPE transfer. However, ultimately a tribunal will determine what was the effective reason for the pay disparity and whether it was tainted by sex. Whilst TUPE requires employers to preserve terms and conditions, it does not prevent an employer improving transferring employees’ terms to align with the existing workforce, therefore the protection of terms under TUPE has limited application as a material factor defence over the longer-term and employers are expected to take steps to reduce disparity in pay between female and male roles.
Furthermore, if the cohort of employees are overwhelmingly female and have inferior terms and conditions which is supported by statistical evidence, this can in itself be evidence their pay disparity is tainted by sex, and maintaining those inferior terms following a TUPE transfer is a perpetuation of unlawful pay disparities based on sex and may trigger equal pay liabilities.
Conclusion
While TUPE is designed to protect employees from detriment at the point of transfer, this case demonstrates that maintaining inherited terms without critical examination can expose employers to claims of indirect discrimination and equal pay.
The outcome of this case serves as a reminder that organisations should regularly review inherited terms and conditions, assess whether pay disparities remain objectively justified, and consider whether harmonisation – handled lawfully and sensitively – may reduce long term legal risks.
How can we help?
For further information about issues raised in this article, please contact a member of our Employment team.
