TUPE – changes to terms are void even where they are in an employee’s favour

There’s an old saying in life that if something appears to be too good to be true, then it probably is!

Under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), all employees employed in an undertaking which is transferring to a new employer do so on their existing terms and conditions of employment and with continuity of service.  As is well known, TUPE can apply on the commercial sale or transfer of a part or whole of a business or other entity, as well as where a contract for the provision of services transfers from one contractor to another.  This latter service provision transfer often occurs without the outgoing contractor wanting it to, but rather because the person to whom they were providing services has decided to award the contract to a new provider.

This is what happened in the case of Ferguson and others v Astrea Asset Management Limited.  The four Claimants were all directors, employees and shareholders in an estate management company, LPAM Limited.  LPAM’s only contract was with Berkeley Square Estate, which owned substantial property assets in Knightsbridge and Mayfair.  LPAM provided property management services to Berkeley Estate.  In September 2017 Berkeley Estate gave LPAM 12 months’ notice to terminate their contract, and with effect from September 2018 awarded the contract to Astrea Asset Management Limited (Astrea).  All parties accepted that this was a TUPE transfer, and therefore all four Claimants, as employees of LPAM, would transfer to Astrea.

In the summer of 2018 the four Claimants, no doubt anticipating that Astrea would terminate their employment, came up with a cunning plan.  They decided to amend their contracts of employment so as to give them a guaranteed annual bonus of 50% of their annual salary, a generous termination payment if their employment was terminated, and increased their notice period from the employer to 2 years.  These were therefore the terms of employment immediately before the transfer, and as such, on the face of it, the terms which Astrea, as the transferee, would inherit.  The transfer duly went ahead, and shortly afterwards Astrea dismissed all four Claimants.  Astrea refused to pay them their increased notice or the termination payments which the individuals had written into their contracts.  The four Claimants brought various claims in the Employment Tribunal, including in respect of the enhanced notice and the termination payments.

The Employment Tribunal found that, on the facts, there was no commercial reason for LPAM to make the amendments to the contracts, and that the only reason that they were made was because of the impending transfer.  Under TUPE, any changes to an employee’s contract of employment which are made where the sole or principal reason for the change is the transfer are void.  The Tribunal held that the sole reason for the variation was the transfer, and therefore the changes made by the four claimants were void.

TUPE was designed to protect employees’ rights when their employment transfers from one party to another, and the provision which makes changes to contractual terms void is designed to protect the employee from adverse changes to their terms of employment.  However, the wording in the Regulations applies to any changes, not just ones which were adverse to the employees.  The Claimants appealed to the Employment Appeal Tribunal, but the appeal was unsuccessful.

The cunning plan therefore failed!

In the vast majority of situations there is unlikely to be a dispute about terms which are advantageous to an employee. However, the case is useful clarification of the fact that if a change to terms (either positive or negative) is for a reason related to a TUPE transfer, then it will strictly speaking be void.