UK: EAT ruling highlights risk of indirect discrimination claims where post-TUPE pay differential

A recent Employment Appeal Tribunal decision serves as a reminder of the importance of due diligence on a TUPE transaction, to identify any potential for discrimination claims where there is a pay differential between transferring and existing staff in comparable roles.  

In Anne v Great Ormond Street Hospital NHS Foundation Trust, a group of cleaners who had originally been provided through a contractor were transferred in house.  For a period post-transfer (pending consultation around the harmonisation process), they were kept on London Living Wages pay rates while the Trust's existing cleaning staff received higher Agenda for Change rates.  As 78% of the transferring cleaners were of BAME background compared to 51% of existing Trust staff in equivalent roles, the pay differential (dependent on not having been TUPE-transferred) amounted to prima facie indirect race discrimination.  The Trust had sought to argue that its failure to harmonise pay was justified by the fact that TUPE renders invalid any changes to contractual terms, including those beneficial to employees, as a result of the transfer.  However, this was rejected on the facts given that the cleaners' contracts contained an express term permitting reasonable changes to terms to be made unilaterally;  therefore TUPE did not provide any justification for failing to increase the pay rates from the day of transfer or shortly thereafter.

Where TUPE transferees are acquiring staff performing comparable roles to their current workforce, it will be prudent to try and anticipate the potential for discrimination claims - from either group - in relation to any disparity in terms, based on any of the Equality Act protected characteristics (sex, race, etc).  Diversity data should be obtained pre-transfer so far as possible, although this may not be straightforward as there is no obligation on employers to hold this data (save for larger employers in relation to gender) nor is it within the employee liability information that must be provided under TUPE. The risk assessment, together with clarification on whether contractual provisions enable unilateral variations to terms, may inform negotiations on price and indemnities.  Any proposed harmonisation will also need to be addressed in the information and consultation process with union/employee representatives and it may be prudent for the transferee to engage in the transferor's consultation process to discuss how the issue will be handled.  Where demographic data is unavailable pre-transfer, transferees should prioritise analysing the risks and their response post-transfer.