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Employment Law

Legal guidance - compliance - software

05 MAR 2012

Franchise business model gives TUPE transferee an Eto reason for dismissing inherited workers following a successful competitive tender

By Simon Devonshire QC

In the Eddie Stobart case (see the last TUPE post on this site), the EAT declined to construe the Service Provision Change ("SPC") regime purposively with a view to extending its reach.    In Meter U Ltd -v- Ackroyd & Ors [2012] UKEAT/0206/11/CEA, a different division of the EAT has identified a business model which may enable contractors legitimately to dismiss transferring employees in change of contractor situations, without incurring liability for automatic unfairness.

The transferee ("Meter U") provided meter reading services across the UK to electricity suppliers, through a network of one man limited company franchisees.   Siemens won two contracts to supply such services to Scottish Power and N Yorkshire Power, beating the incumbent contractors in a re-tendering process.   Siemens in turn sub-contracted the meter reading work to Meter U.   This was held to constitute a SPC from the incumbent contractors to Meter U.   After a process of consultation, Meter U dismissed the transferred workers, who were offered (but in the main refused) the opportunity of forming franchise companies and becoming Meter U franchisees.    Were those dismissals automatically unfair (as connected with a TUPE transfer) or was Meter U able to invoke the ETO exemption?

Reg 7(2) provides that a dismissal will not be automatically unfair where the reason for dismissal is an economic, technical or organisational reason entailing changes in the workforce.   It is settled law that this must involve more than just a change in the terms and conditions or identities of the workers employed to do the work, and requires a change in the numbers and/or functions of those employed; Berriman -v- Delabole Slate [1985] ICR 546.   In Meter U, the EAT (Slade J) concluded that these requirements were met by Meter U, rejecting the suggestion that the franchisees were part of the workforce for this purpose.    Meter U had always operated a franchise business model, and (subject to a remission in some of the cases for a consideration of whether those franchises were a sham, concealing a true employment relationship) the transferred employees had been dismissed for redundancy.   The workforce for the purpose of reg 7(2) did not include individuals providing their services through sub-contracted franchise companies.

It is trite law that the question of employee status is determined by reference to substance rather than the label the parties attach to the relationship.   Seeking to characterise an employee as a franchisee will not enable a transferee to invoke reg 7(2) if that does not represent the true reality of the relationship.   But for transferees who genuinely operate a franchise business model, this decision may give them an edge over ‘employer' competitors in tendering processes.


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