Employment and Immigration Law Update – TUPE: pre-transfer contractual changes

The Employment Appeal Tribunal (EAT) has considered whether beneficial contractual changes made before and by reason of a TUPE transfer are void.

Ferguson and others v Astrea Asset Management Ltd, UKEAT/0139/19

Facts

The short answer is yes to the extent that they are paid via PAYE and that other conditions of the Scheme are met. Directors would have had to be on the company payroll on or before 19 March 2020. However furloughing a director must be seen in the broader context of directors’ duties which will make the decision more complex. See further detail below.

This case concerned four company directors of an estate management company, Lancer Property Asset Management (LPAM). The sole client of the business gave 12 months’ notice that it was terminating its contract with LPAM and transferring it to Astrea Asset Management Ltd (AAML). This amounted to a service provision change under the TUPE Regulations.

Prior to the date of the transfer, the claimants updated the LPAM staff contracts and made substantial improvements to their own contractual terms, including a guaranteed annual bonus of 50% salary, a termination payment and a 24 month notice period. Following the transfer, the four directors were dismissed for gross misconduct. They brought a number of claims against AAML, including for the contractual terminations payments payable under their varied terms of employment. An employment tribunal held that the pre-transfer variations were void on the basis that the impending TUPE transfer was the reason for the variation and EU law cannot be used for abusive or fraudulent ends (known
as the ‘abuse principle’). The claimants appealed to the EAT.

EAT decision

The EAT dismissed the claimants’ appeal, holding that regulation 4(4) of TUPE rendered void all purported changes agreed by virtue of the transfer, whether detrimental or beneficial to transferring employees.

Previous case law (under the 1981 TUPE Regulations) was relied upon by the claimants in this case to suggest that only adverse changes to contractual terms were ineffective. This argument was rejected by the EAT, on the grounds that there was no equivalent provision to regulation 4(4) under the 1981 Regulations.

This provision under TUPE should be construed to cover all contractual variations resulting from the transfer, whether or not adverse to the employee. The EAT said that this broad interpretation would avoid the need to address difficult questions of whether or not a purported variation is adverse to the employee, and would reduce confusion over what the terms of an employee’s contract are at any particular time.

In the alternative, the EAT agreed with the tribunal that the purported variations were invalidated under the EU ‘abuse of law’ principle.

Consequences

The purpose of the Acquired Rights Directive, as implemented by the TUPE Regulations, is to safeguard the rights of transferring employees rather than for individuals, such as the claimants in this case, to gain improper advantage.

The facts of this case are unusual and somewhat extreme, but the EAT’s decision provides welcome clarity on the question of whether or not beneficial contractual changes are rendered void in addition to detrimental changes, if the reason for the changes is the TUPE transfer.

This article is from the May 2020 issue of Employment and Immigration Law Update, our monthly newsletter for HR professionals. To download the latest issue, please visit the newsletter section of our website. For further information please contact Liz Stevens or another member of Birketts’ Employment Law Team.