TUPE - A green light to inflate pay and terms? Think again.

Over the coming months, it is likely we will begin to see businesses being bought and sold in the aftermath of the coronavirus pandemic.  When a business is bought with the employees as part of the purchase, those employees need to be transferred over to the new business through the process of TUPE.  Howard Robson, Partner in our Employment Law team, explains more about TUPE and reviews a recent case in which the directors of a property management company tried to boost their benefits package before transferring to a new employer.

What is TUPE?

TUPE – which stands for the Transfer of Undertakings (Protection of Employment) Regulations – are rules designed to protect jobs and safeguard contractual terms for employees when a business transfers to new ownership or a contract is placed with a new service provider.  While it has always been clear that the new employer must not change terms to disadvantage an employee, now the Employment Tribunal (ET) has ruled that changes made solely for the transfer should not advantage an employee either.   

In the case of Ferguson & Ors v Astrea Asset Management Limited, Lancer Property Asset Management, which provided estate management services to one large client, Berkeley Square Estate, decided to move to a new service provider.  As a result, the directors of Lancer were to become employees of the new provider, Astrea Asset Management Ltd under the TUPE regulations. 

In preparing for the transfer, the directors decided to award themselves a salary increase and generous new terms for bonus and termination payments, together with a 24-month notice period.

The new employer, following the TUPE transfer, disputed the validity of the terms, sacking two of the directors for gross misconduct and refusing to pay the enhanced benefits to the other directors.   The resulting dispute ended at the Employment Appeal Tribunal (EAT) with the directors arguing that the TUPE regulation regarding pre-transfer variations was for situations where the change was detrimental to the employee.  

“TUPE is about ensuring fairness and continuity, so it’s no surprise that anything that makes an employee worse off would not be allowed, but being better off hasn’t been tested in this way before,” Howard explains.  “The EAT commented that all contract variations which are connected to a transfer are void, whatever the outcome, and the objective of TUPE is to protect, not enhance.  The ET also highlighted that no legitimate commercial purpose could be demonstrated for the changes, meaning they infringed the general abuse principle of EU law and were unenforceable.” 

The TUPE regulations are designed to protect employees when a business transfers or where there is a change in service provider.  In a business transfer, where a business is sold as a going concern, and continues to trade in the same way after the transfer, then the employees would be protected. 

In this case however, TUPE may apply also when a service provision change arises – such as when a company ends a long-term contract for the supply of services and takes the services in-house or awards the contract to another service provider. If the original service provider has employees whose role is to service that contract exclusively, and the new service delivery remains fundamentally the same, then TUPE may mean that those employees become employees of the company or the new service provider and continue to fulfil their roles, as happened with Lancer Property Asset Management.

If you have questions regarding TUPE or you are looking to buy or sell your business, you can contact Howard or a member of the Employment Law team on 023 8071 7717 or email employment@warnergoodman.co.uk.

To receive regular Employment Law updates from the team regarding recent tribunal cases and legislation updates, you can subscribe to our weekly Employment Law Newsletter by completing our subscription form or emailing us at events@warnergoodman.co.uk. 

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.