Neither better nor worse – how TUPE regulations make employee transfers fair for all

28/07/2020

TUPE regulations are rules designed to protect jobs and safeguard the contractual terms for employees when a business transfers to new ownership or when a contract is placed with a new service provider. 

While it is clear a new employer must not change employment terms to unfairly disadvantage an employee, an Employment Tribunal has now ruled that any changes made solely for the transfer should not be to the advantage of an employee either. 

Here, Julia Fitzsimmons, explains what the new ruling means for TUPE transfers in the future. 

TUPE – which stands for Transfer of Undertakings (Protection of Employment) Regulations – is about ensuring fairness and continuity when employees transfer from one employer to another, so it’s no surprise that anything that makes an employee worse off would not be allowed. However, it has never been tested whether the same applies to employees who gain an advantage until now.

In the recent case of Ferguson & Ors v Astrea Asset Management Limited, the directors of a property management company ran into a brick wall when they tried to boost their benefits package before transferring to a new employer under the TUPE regulations. 

The case involved Lancer Property Asset Management, which provided estate management services to one large client, Berkeley Square Estate, who 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. 

But in preparation for the transfer, the directors of Lancer Property Asset Management 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 disputed 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 up 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 only. 

The tribunal ruled 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 EAT 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. 

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 also be protected by TUPE. 

As in the case cited above, TUPE can also apply when there is a change to a service provision, such as when a company ends a long-term contract for the supply of services and takes those services in-house or awards the contract to another 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 where they can continue to fulfil their roles, as happened with Lancer Property Asset Management.

Ferguson & Ors v Astrea Asset Management Limited, UKEAT/0139/19/JOJ

If you would like to discuss any Employment issues, please contact Julia using the details below.

 

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