When an undertaking is transferred the transferee often wants to make changes to the terms and conditions of employment.

The Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE), which incorporate the Acquired Rights Directive into English law, make it difficult for employers to impose variations of contract after a transfer.

But until the Employment Appeals Tribunal's (EAT) decision in Wilson v St Helen's Borough Council [1996] The Times, 10 April, it had always been assumed that an employer might agree a change with an employee.In Wilson the Red Bank Controlled Community Home, a school governed by teachers and carers, was controlled by the Lancashire County Council.

St Helen's Borough Council agreed to take it over on condition that there would be no adverse impact on its resources.

Some 76 employees were offered jobs by St Helen's under new terms and conditions, which took effect from 1 October 1992.

However, between December 1993 and June 1994 the applicants started proceedings in the industrial tribunal complaining of deductions from wages under the Wages Act.

They claimed that the variation was ineffective and there had been a deduction from wages under the county council terms and conditions.

The industrial tribunal held there had been n o deduction contrary to the Wages Act because the employees had worked on in the face of unilateral variation thus affirming their contracts by their conduct.The EAT rejected this decision, relying on the case of Foreningen af Arbejdsledere i Danmark v Daddy's Dance Hall A/S [1988] ECR 739.

In this case, it was held that a decision on whether an employee might waive rights conferred by the Acquired Rights Directive depended on whether the reason for the waiver was connected with the transfer.

The court said that the Directive meant that an employee could not waive the rights conferred on him by the Directive, even if the disadvantages resulting from this waiver were balanced by benefits so that he was not placed in a worse position.

However, this did not preclude the new employer making an agreement with the employee to alter the employment relationship.

But the European Court qualified this, stating that the employment relationship 'may be altered with regard to the transferee to the same extent as it could have been with regard to the transferor, provided that the transfer of the undertaking itself may never constitute the reason for that amendment'.Allowing the claim in Wilson, the EAT adopted this statement and considered that the variation of the contract which was found by the industrial tribunal to have occurred under the English legal system could not be supported by Daddy's Dance Hall.

It was a question of fact for industrial tribunals to determine when a variation was connected to a transfer, but if the variation were so connected it would be ineffective.One struggles to read the EAT's decision as being limited to a case of unilateral variation followed by acquiescence -- no doubt under sufferance -- by employees, leading to a subsequent affirmation or waiver under English contract law.

After all, there can be no objection to the control of the right of an employer unilaterally to impose a contract change by introducing new contracts without consideration or express consent, relying on employee passivity as in Wilson.

However, a consensual change, even with valid consideration, also seems to be caught by the Wilson case.

If that were correct, a contractual change supported by a buy-out of the offending old terms would nonetheless still infringe the Directive and might be ineffective.There are also concerns about the quasi-retrospective effect of the decision.

The EAT said that any agreed variation is invalid if connected with the transfer.

If so, any purported agreed variation -- with consideration or not -- within six years of the variation might be challenged under the law of contract in the ordinary court and, within a similar timescale, under the Wages Act.

The normal three-month time limit for claiming under the Wages Act does not, in a series of deductions, run from the first deduction in the series but rather from the last (s.5(2), (3)).

Finally, it is not clear whether any buy-out payment already made by the employer can be set off against such claims.Undoubtedly, powerful arguments based on commercial pressure and the need for subsidiarity of approach will be made in UK courts in future cases.

It could be argued that the Directive is only aimed at achieving a partial harmonisation of the laws of member states.

In Daddy's Dance Hall, Advocate-General Darmon would have left it to national law to determine whether, and under what conditions, it was possible to waive rights that were not a matter of public policy and, in particular, to what extent a general assessment of the employee's situation should be ma de.

However, the court regarded the transfer of employment rights under art 3(1) as itself a matter of public policy and thought that those rights could not be restricted even with the consent of employees.

It seems that flexibility in a labour market is equated with a reduction in employment rights.

Some argue that there is flexibility enough and that there have been too many ways in which the Directive has been manipulable by employers.Employers will require a ready solution to this new development.

It is hard to give practical advice at this early stage but two things are clear.

Transferees will begin to ask for indemnities in respect of restructuring exercises in addition to their usual request for indemnities concerning pre-transfer liabilities.

Undoubtedly, some deals may founder in the absence of such indemnities.Both Daddy's Dance Hall and Wilson emphasise that an agreement to alter employment rights may take place where the reason for the alteration is not the transfer of an undertaking.

There will therefore be an increasing focus in industrial tribunals on the factual issue of when restructuring programmes are connected with transfers and when, conversely, they are permissible because they arise for reasons independent of a transfer.

In the absence of an ingenious solution by a UK court, this clash between social policy and labour market flexibility will have to be resolved at EU level.