Firms winning legal service contracts from competitors could face a ‘landslide’ of six-figure claims for unfair dismissal if they do not take on staff on reasonable terms along with the contract, the winner of a landmark employment tribunal case said this week.

In the case, Liverpool employment tribunal found in favour of solicitors and support staff of Liverpool firm Lees Lloyd Whitley (LLW) who resigned when Southport firm Barnetts took over its £1 million account for Britannia Building Society.

Judge Derek Reed ruled that Barnetts had failed to consult with ‘an organised grouping’ of 23 LLW staff affected by a ‘service provision change’ under the 2006 TUPE (transfer of undertakings, protection of employment) regulations. The employees had been subject to a ‘substantial change in working conditions to their material detriment’ and were thus entitled to treat their employment contract as terminated unfairly.

Their combined claims amounted to more than £250,000. Gordon Turner (pictured), principal of Essex firm Partners Law, who acted for the claimants throughout the two-year case, said this was the first time the TUPE changes to service provision rules had been tested on the grounds of material detriment.

‘Law firms are constantly winning or losing contracts and this could be the beginning of a landslide of cases built around TUPE. The law in this area is notoriously complex and there are financial penalties for non-compliance. But equally important, taking on a contract without first checking the TUPE rules could leave a firm with its margins wiped out by a sudden influx of staff it does not need.’

Turner urged law firms to check whether TUPE applies, to engage with the client and transferor, consult with employees ‘in a meaningful way’ and systematically deal with all material detriments.

Stefan Cross, of Newcastle firm Stefan Cross Solicitors, said the case was unusual: ‘Surprisingly few’ employees have exercised their rights by refusing to transfer or claiming material detriment. ‘The most exposed firms are likely to be the providers of factory legal services, such as bulk conveyancers,’ he said.

Simon Jeffreys, employment partner at CMS Cameron McKenna, said the judgment opens up the possibility of ‘very significant added complication and cost’.

Barnetts partner Philip Bright said that, of the 23 LLW employees affected by the transfer, six lodged a claim and only two were found to have been unfairly dismissed: ‘We await counsel’s opinion on the judgment.’