Are Beneficial Changes to Employees' Terms and Conditions Void If Made Because of TUPE Transfers?
In a recent case, the Employment Appeal Tribunal (EAT) considered whether pre-TUPE transfer contractual changes that were beneficial to employees were void where the reason for the variations was the TUPE transfer itself.
Background
Regulation 4(4) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) provides that "any purported variation of the contract shall be void if the sole or principal reason for the variation is the transfer itself."
Ferguson and others v Astrea Asset Management Ltd (AAM)
Four directors of LPAM Ltd, a property management firm, improved their contractual benefits ahead of a pending TUPE transfer to AAM. The new rights guaranteed the directors bonuses of 50% of salary, provided entitlements to termination payments of one month's salary for each year worked and enhanced notice periods.
Following the TUPE transfer, AAM dismissed two of the directors for gross misconduct and took the position that the other two directors had not transferred under TUPE. All four directors subsequently brought tribunal proceedings, including claims for the contractual termination payments. The tribunal found that the pre-transfer variations were void considering Regulation 4(4) TUPE in light of the EU abuse of law principle (which prevents EU laws from being used for abusive or fraudulent purposes).
The directors appealed to the EAT.
The EAT Decision
The EAT dismissed the appeal, finding that the pre-transfer contract variations were void because the main reason for the variations was the TUPE transfer itself. The EAT noted that the purpose of the Acquired Rights Directive (the EU Directive which TUPE implements into national law), was to safeguard employees' rights on transfer rather than to improve an employee's position.
The EAT also found that the directors were in any event precluded from relying on the contractual variations due to the EU abuse of law principle.
Best Practice
The facts of this case are relatively extreme. It is clear that the directors were seeking to enhance their terms and conditions because of the TUPE transfer in a way that placed a significant burden on the incoming employer. In these circumstances the contractual changes were void because they were made by reason of the TUPE transfer.
The case does not mean that contractual changes which benefit employees will be void if they are made for reasons other than the transfer itself.
Under TUPE, contractual variations will be permitted if any of the following apply:
- The reason for the change is not connected to the TUPE transfer.
- The sole or principal reason for the variation is an economic, technical or organisational reason and the parties agree to that variation.
- The terms of the employment contract permit the employer to make that particular variation.
- The terms are incorporated from a collective agreement, provided that the variation takes effect more than one year after the date of the transfer and the varied terms are no less favourable to the employee.
- The transferor is subject to "relevant insolvency proceedings".
It is also worth noting that the current BEIS guidance states that an employer may vary terms and conditions "when changes are entirely positive from the employee's perspective". However, in this case, the EAT noted that this guidance is only of limited persuasive value.