Under Regulation 4 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) any change to an employment contract is void if the TUPE transfer is the sole or principal reason for the change and is not for an economic, technical or organisational reason entailing changes in the workforce. This seems pretty clear but despite this government guidance on the TUPE regulations seemed to suggest that this may not be the case for changes that are entitrely positive from an employee’s perspective. This was challenged however in the case of Ferguson and ors v Astrea Asset Management Ltd.
Facts of the case
The four claimants were directors and employees of an estate management company in London, LPAM Ltd. The company had one client which was an estate worth an estimated £5 billion. The owners of the estate decided to terminate their contract with LPAM Ltd and gave them 12 months’ notice. A new estate management company, AAM Ltd, was appointed to take over the contract. This amounted to a service provision change within the TUPE Regulations so the four claimants were due to transfer to AAM Ltd when they took over the contract. Two months before the transfer took place, the claimants decided to vary their contracts of employment to enhance their terms. In this regard, they changed their contracts to provide for a guaranteed annual bonus of 50% of their salary, termination payments based on their length of service and a 24 month notice period. They transferred to AAM Ltd and were immediately dismissed. They issued proceedings in the Employment Tribunal to try and recover the termination payments due to them under the terms of the amended contracts.
Decision of the ET and Employment Appeal Tribunal (“EAT”)
The Employment Judge rejected their claims. She considered they were void under Regulation 4(4) TUPE because the transfer was the sole reason for the variations. The Judge also took in to consideration the claimants’ aim in making the changes which was to try and secure a commercial advantage over the incoming employer. In her opinion, that was incompatible with the real purpose of the TUPE Regulations which is to safeguard employee rights and not to improve them. She felt the claimants were seeking to use the Regulations for abusive ends which is contrary to the abuse principle of EU law. The claimants appealed to the EAT.
The EAT rejected their appeal. In relation to Regulation 4(4) TUPE, the EAT confirmed that the restrictions on making changes to contractual terms do not only apply to changes that are adverse to employees. If that were the case then it could lead to confusion and dispute over whether a purported change is adverse or not. In terms of the abuse principle, the EAT agreed with the Employment Judge that the effect of the contractual changes had been to greatly improve the claimants’ rights following the transfer which is not compatible with the purpose of the Regulations. They were satisfied that there was sufficient evidence to demonstrate that the claimants had tried to gain an advantage by making the changes and that they were acting dishonestly in doing so.
This case highlights the perils of pre-transfer variations to contractual terms and conditions which are made by reason of a transfer, regardless as to whether they are beneficial to the affected employees or not. In this case, it seems the claimants were hoping the incoming employer would not notice the changes they had implemented which underlines the importance of undertaking proper due diligence. It is worth noting that it is still potentially possible to agree beneficial changes to terms and conditions post-transfer.