We consider the EAT's recent decision in Alpha Anne & Ors v Great Ormond Street Hospital NHS Trust
Background
Where a service provision change (SPC) occurs, the buyer of the services often inherits a workforce through a TUPE transfer. As a result of the SPC, the buyer may now have a 'two-tier' workforce, one on terms and conditions as directly negotiated with its existing workforce, the other on terms and conditions inherited from the previous employer. The orthodox approach is that there must be no harmonisation onto the buyer's terms and conditions, as this would amount to a transfer-related change, which is prohibited by TUPE (unless narrow exceptions are met). However, a somewhat surprising outcome of the case reported below is that the employer in this case was held liable for indirect race discrimination when it did not eradicate the pay inequality which existed following the TUPE transfer, as between the existing employees and the incoming workforce.
Facts
The case concerned two groups of cleaners working at Great Ormond Street Hospital — one group employed directly by the Trust, and another employed by OCS, an external contractor. The OCS cleaners were paid 75p p/h less than those employed by the Trust, whose rates were determined by collective agreement.
The OCS cleaners transferred back in-house on 1 August 2021, but the Trust initially kept them on their lower rate of pay, pending consultation on how to harmonise terms. A staff survey from 2019 had revealed that 78% of the OCS cleaners were Black or from an ethnic minority background. Against that backdrop, the claimants brought claims of indirect race discrimination in relation to their pay both before and after the transfer.
Employment Tribunal decision
An Employment Tribunal dismissed the claims. On the pre-transfer claim, the Tribunal relied on the Court of Appeal's decision in Royal Parks Ltd v Boohene. It found that s.41 Equality Act 2010 does not enable an outsourced worker to bring a discrimination claim against an end-user client in relation to pay determined by their contract of employment with the contractor, even where the end client had control or influence over those terms. Since the Trust was not the employer, it could not be held liable.
On the post-transfer claim, the Tribunal again relied on Royal Parks, noting that there was no evidence the Trust had applied the relevant provision, condition or practice ("PCP") to other contractors, nor any evidence as to the racial origins of other contractor workforces.
The EAT's decision
The EAT agreed with the ET that there was no basis for the pre-transfer claims, in light of s.41 Equality Act 2010. However, on the post-transfer claims, the appeal was allowed. Once the transfer had taken place, the Trust became responsible for the claimants' terms and conditions and was potentially in scope for race discrimination.
The Trust argued that TUPE itself prevented them from interfering with the claimants' terms and conditions; any variation by reason of the transfer, without an economic, technical or organisational (ETO) reason entailing changes in the workforce, would be void. On that basis, the Trust argued that harmonisation was not possible. Even if the change would have benefited the employees, it simply could not have been implemented.
The EAT rejected this argument. The claimants' contracts contained a clause permitting the employer to make unilateral changes to terms and conditions. The EAT held that this power, to make "reasonable changes to these and any other agreed terms and conditions of employment", must include the right to increase pay rates to the rate reflected in the collective agreement. Since the Trust did have the power to uplift pay, the pay disparity was not justified, and so the discrimination claim succeeded.
What this means in practice
The decision does not alter the basic legal position on post-transfer harmonisation. A variation made by reason of the transfer, without an ETO reason, will still be void. This case does not suggest that any pay differential will automatically require an immediate pay increase. What it does do, however, is highlight potential liability for discrimination (not just race) where pay differences exist across a workforce following a transfer.
Employers should consider:
- Due diligence. Attention is usually focused on who the transferee is inheriting, but consideration should also be given to how incoming terms compare with the terms of the transferee's existing workforce, i.e. what potential inequalities this could create for those with protected characteristics.
- Review the scope of employment liability information (ELI). ELI is limited in both nature and scope. Employers and advisers should consider whether commercial terms can be structured to obtain earlier and more detailed information on pay rates and benefits, as well as meaningful diversity data, if this is collected by the transferor.
- Use indemnities wisely. Indemnities can ordinarily be structured to limit the transferee's exposure to post-transfer liabilities. Where potential discrimination issues of this kind are identified prior to signing, it may be possible to negotiate terms that provide broader protection for the buyer.
- Consider the contractual position on variation carefully. As this case illustrates, the existence of a unilateral variation clause in the inherited contracts may significantly affect the analysis on justification. Employers should check whether such powers exist and, if so, whether making beneficial changes at or shortly after the transfer is feasible and appropriate.
Authored by: James Tamm and Shireen Shaikh
