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Business Employee Insurance And Protections

TUPE: New Employer to Provide Share Scheme to Incoming Employees

A recent judgment from the Scottish Court of Session has once again brought the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) into the headlines.

The Court’s decision in Ponticelli UK Limited (‘Ponticelli’) v Gallagher provides clarity on the scope of the regulations for expanding businesses, with potentially significant practical and cost implications.

What is TUPE and when does it apply?

TUPE puts legal measures in place to protect employees when an economic entity (or part of an economic entity) in which they are employed is transferred (business transfer) or where there is a change in service provider (service provision change). It provides that the employment of the relevant employees transfers from the original employer to the new owner or new service provider.

Under TUPE, transferring employees generally retain the contractual benefits to which they were entitled with their previous employer. The transferee employer automatically acquires the rights, powers, duties, and liabilities of the transferor employer in relation to incoming employees. TUPE ensures continuity of employment on transfer and safeguards employees’ terms and conditions.

Ponticelli Limited v Gallagher

The Ponticelli case involved a dispute over the right of employees to participate in a share incentive plan (SIP). Mr Gallagher had enrolled in a voluntary SIP with his employer prior to transferring under TUPE to Ponticelli. The SIP was not referenced in Mr. Gallagher’s employment contract. Ponticelli did not operate a comparable scheme and offered a one-off payment as compensation for the loss of the SIP. Mr Gallagher declined this offer and filed an Employment Tribunal claim.

On appeal, the Court of Session upheld the Employment Tribunal’s view that the SIP had formed an integral part of Mr Gallagher’s financial package, and he would be financially disadvantaged if he were unable to participate in an equivalent scheme. Where a scheme offered by a transferor employer could not transfer, the transferee employer (Ponticelli) was under an obligation to offer a share scheme of ‘substantial equivalence’.

What does it mean?

This ruling clarifies the scope of the regulations in relation to collateral contracts. The key takeaway is that rights and liabilities ‘in connection with’ a contract of employment can transfer under TUPE even where they are not expressly referenced in the employment contract itself or where they are expressed to be non-contractual. This highlights the importance of due diligence on the part of purchasers acquiring a business (or new incumbents under a service provision change) to avoid being caught off-guard by employment rights which are not expressly referenced in the employment contract.

TUPE is a complex area of employment law, and the emergence of new, redefining case law only adds to that complexity. This article represents a general summary of the law and should not replace legal advice tailored to your specific circumstances.

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