Right to participate in share scheme transfers under TUPE
The Inner House Court of Session has confirmed that an employee's right to participate in a share incentive scheme transferred to his new employer under TUPE, even though it was not mentioned in the employment contract.
Background
A share incentive plan (a SIP) is a type of tax-advantaged employee share plan that allows employers to invite eligible employees to acquire shares in the company. The shares are then held in trust for the employee subject to the rules of the SIP. If an employee ceases to be employed by the entity that runs the SIP, the participant's shares will also no longer be subject to the SIP.
In the case of Ponticelli UK Ltd v Gallagher [2023], Mr Gallagher's employment transferred to Ponticelli under TUPE. Before the transfer, Mr Gallagher participated in a SIP operated by his original employer. The SIP was not mentioned in Mr Gallagher's contract of employment and the SIP rules provided that the SIP was not part of any employment contract.
When Mr Gallagher's employment transferred to Ponticelli, his participation in the SIP ended. Ponticelli offered him compensation in the form of a one-off payment, to reflect the fact that it was not going to provide a SIP post-transfer.
Claim
Mr Gallagher brought an Employment Tribunal claim, arguing his entitlements under the SIP were rights under or in connection with his contract of employment so that they transferred to his new employment.
Both the Employment Tribunal and the Employment Appeal Tribunal upheld Mr Gallagher's claim, and Ponticelli appealed to the Inner House of the Court of Session (the Scottish Court of Appeal).
The Inner House of the Court of session dismissed Ponticelli's appeal. The right to participate in the SIP was an integral part of Mr Gallagher's overall financial package and he would be financially disadvantaged if he were unable to participate in an equivalent scheme with Ponticelli. Whilst Mr Gallagher's employment contract did not mention the SIP, his right to participate in it was a right "in connection with" his employment contract. Mr Gallagher was therefore entitled to participate in an equivalent plan following the TUPE transfer.
Comment
This is a significant decision and it is not currently known whether Ponticelli intends to appeal further. This decision calls into question employers' current practices around share incentive schemes, which are generally kept separate to employees' contracts of employment. The decision is likely to prove costly for transferee employers who may now be required to provide equivalent plans following TUPE transfers.