EMPLOYMENT LAW

Landmark Employment Appeal Tribunal decision regarding TUPE

Company Directors amended their employment contracts to include more favourable terms prior to TUPE transfer.

The Employment Appeal Tribunal (EAT) has handed down a landmark decision regarding the implications of the Transfer of Undertakings (Protection of Employment Regulations 2006 (“TUPE”) in Ferguson v Astrea Asset Management Ltd UKEAT/0139/19.  As most readers will be aware TUPE may apply when a transfer of a business or change in service provision occurs. The EAT held that regulation 4(4) of )TUPE, which renders void contractual variations where the sole or principal reason is the transfer, invalidates beneficial as well as detrimental changes made because of a transfer.

In September 2016, the estate owners of Lancer Property Asset Management gave 12 months’ notice of termination of its management contract with Lancer. Astrea Asset Management Ltd (Astrea), another estate management company, would take over the contract with effect from 29 September 2017. It was common case that this represented a change in service provision to which TUPE applied.

Prior to their transfer to Astrea, the four company directors of Lancer amended their employment contracts to include more favourable terms, such as new rights to guaranteed bonuses of 50% of their salary, new entitlements to termination payments of a months’ salary for each year worked and enhanced notice periods.

After the transfer took place, the directors were then dismissed by Astrea for gross misconduct and the Directors commenced Tribunal proceedings against the company. They brought claims for unfair dismissal, notice pay, and unauthorised deduction from wages. The Employment Tribunal found that the contractual variations made by the Directors were void as they had purposefully taken advantage of the law.

The EAT upheld the Tribunal’s decision upon appeal, and ruled that all contractual variations made because of the transfer were void as they contravened the EU’s abuse of law principle. This principle outlines that EU law cannot be relied on for abusive or fraudulent ends. There are essentially two requirements for the abuse principle to apply. First there must be objective circumstances which show that the purpose of the rules had not been achieved, and; secondly, there must be an intent to obtain an advantage from the EU rules by artificially creating the conditions necessary for their application. The EAT held that both of these requirements applied in this case. The contractual changes had the effect of enhancing the employees’ rights rather than safeguarding them and therefore the purpose of TUPE had not been achieved.

This judgment therefore serves as a note of caution to employees/directors (and their advisers!) who may consider using the transfer process as a way to alter their contractual terms to personally benefit them.

Should you require advice or assistance in relation to any of the above please do not hesitate to contact Jan Cunningham or David Mitchell in our Employment Team.

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