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Meter U v Ackroyd

On 28 February 2012 the Employment Appeal Tribunal (EAT) held that dismissals of 117 employees who had transferred to their new employer (pursuant to Transfer of Undertakings (Protection of Employment) Regulations 2006 “TUPE”) and who refused to adopt their new employer’s corporate structure and become franchisees, was lawful - Meter U Ltd v Ackroyd & others

Background and facts

Meter U is a franchised business providing an electricity meter reading service to its customers. Rather than employ meter readers, Meter U sub contracts the meter work to its franchisees. As is commonplace with franchises in the UK, Meter U’s franchisees typically operate through their own private limited companies (as opposed to being sole traders).

In December 2009 the employment contracts of 10 meter readers of G4S Utility Services (UK) Limited and 109 employees of N Power Yorkshire Limited were transferred to Meter U pursuant to TUPE as a result of Siemens being awarded contracts by Scottish Power (that had previously been serviced by G4S and N Power Yorkshire) who then sub-contracted the meter reading work to Meter U.

Meter U consulted with the transferring employees and with their trade union representatives and gave each of them the opportunity to operate as a franchisee in line with its existing business model.  Only one employee took up the offer and the other 118 employees were therefore dismissed for reasons of redundancy; no employees were needed – only franchisees (operating as limited companies).

The dismissed employees brought Employment Tribunal claims for automatic unfair dismissal pursuant to Regulation 7(1)(b) of TUPE which states that the dismissals would have been deemed automatically unfair:

 “if the sole or principal reason for [the] dismissal[s] is … (b) a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce”.

At Tribunals in Leeds and Exeter the claims were upheld.  The Tribunals found that “franchisees” were deemed to be included in the definition of “workforce” and, therefore, as there was no change in the number of persons that Meter U required in its workforce (i.e. the total headcount would have been the same whether or not they had stayed as employees or converted to franchisees) they had been automatically unfairly dismissed (as above). In a nutshell, as Meter U was proposing to alter the status of its employees, not the total numbers, the dismissals were unfair.

Decision

Meter U appealed and were successful. The Employment Appeal Tribunal disagreed with the Tribunals. Specifically, the EAT noted that “workforce” is not defined in any of the relevant legislation and whilst it could be assumed that people, employees and workers are all included, it could not be assumed that limited company franchisees would be included. On this basis, the dismissals were therefore deemed to be “fair” as there were 117 employees (who, don’t forget had been offered work albeit as limited company franchisees) who were not required within the new company structure and therefore Meter U were entitled to treat them as redundant.

Practical Implications

Katie Franklin, an Associate in Leathes Prior’s Employment team (with considerable expertise in advising franchises and a particular niche specialism in TUPE), commented as follows:

“The decision in Meter U v Ackroyd & others could be very useful for any franchised business which is looking to acquire another business whose employees perform the same or similar service to its franchisees. With early focus from franchises on their core structure together with open and advanced consultations with affected persons following the gain (or loss) of service contracts could mean that any potential claims could be avoided, or at the very least, proactively limited. TUPE is an inherently complex area and I would encourage any employer to seek advice on its implications as early as possible; the sooner you seek advice, the more helpful we can be.” 

Ed Savory, an Associate within Leathes Prior’s Franchising team, added:

“The EAT expressly noted that Meter U’s business model of using franchisees to carry out meter reading rather than employees (or contractors) was long established and made Meter U more competitive in winning contracts. This is another reminder of the potential benefits that franchised business models can offer to some companies. We generally recommend that our franchisor clients insist that their franchisees operate through limited companies and this is another example of a potential benefit in doing so.”

For more information advice or guidance on this case, employment law and/or franchising law please contact Katie Franklin or Ed Savory or any other members of the firms’ Employment or Franchising teams.

Katie Franklin Ed Savory Employment Franchising Published on 2012-03-02 09:39:31