TUPE transfers: are favourable contractual changes void?
The key aim of the TUPE Regulations is to ensure employees are not affected by a change of employer as a result of a change in ownership or management. Any variation to a transferring employee's contract is void if the sole or principal reason for variation is the transfer. But what about if the changes are more favourable? In the recent case of Ferguson and others v. Astrea Asset Management, the EAT confirmed that prohibition on contractual changes by reason of a TUPE transfer applies both to changes which might be detrimental to the employee and to changes which might be beneficial.
The legal framework
Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), Regulation 4(4) states:
“… any purported variation of the contract shall be void if the sole or principal reason for the variation is—
- the transfer itself; or
- a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce.”
What happened?
In Ferguson, prior to a change in service provision (in which TUPE would apply) the four claimants, who were directors of the company, updated their staff contracts and undertook a review of their own terms. At this time, they implemented changes to their terms which were more favourable, such as:
- The right to a guaranteed annual bonus of 50% of their salary;
- A termination payment calculated by reference to their length of service as directors; and
- An increase in notice period.
Following the transfer, the directors were dismissed for gross misconduct and commenced Employment Tribunal proceedings against the Respondent transferee, including claims for the termination payments that had been introduced by their pre-transfer variation to their employment contracts.
The decision
The Employment Tribunal found that the changes were void by virtue of Regulation 4(4) of TUPE 2006. The claimants appealed the decision on the basis that Regulation 4(4) only applied to changes adverse to the employee.
The EAT upheld the Tribunal’s judgment and the appeal was dismissed. It was held that Regulation 4(4) of TUPE 2006 applied to any contractual change made because of the transfer, not just those detrimental to the employee, and as such the changes were void.
What this means
Any variation to a transferring employee's contract is void if the sole or principal reason for variation is the transfer. Although likely to be quite rare, this case confirms protection for the transferee should they find themselves in the situation where senior employees amend their terms beneficially in anticipation of a pending transfer.
It is important to note that this case concerns a beneficial change made by the transferor made immediately before the transfer (and which was deemed to be made by reason of the transfer). Remember that it may still be possible for a transferee to make post-transfer changes for the benefit of transferring staff in some limited circumstances. We strongly recommend that legal advice is sought if you are considering making any contractual changes, whether as transferee or transferor, that may be deemed to be transfer-related.
Ashley Powis is a Solicitor and Andrew Forrest is a Partner in the Employment, Pensions and Immigration Team at Weightmans LLP.
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