The Employment Appeal Tribunal has ruled that significant enhancements to terms and conditions, agreed by the transferor shortly before a TUPE transfer, were void and so did not bind the transferee. The dispute arose following the appointment of a new management company by the owners of the Berkeley Square Estate. It is the first time that the validity of transfer-related variations has been addressed by the appeal courts in this context.
The TUPE Regulations are typically invoked to prevent the transferee business from seeking to impose changes to the terms and conditions of transferring employees to their detriment. But, according to this latest decision from the EAT, it can also be used to protect the transferee, where the transferor has engineered a significant uplift in terms and conditions shortly before the transfer.
In this case the senior management of the incumbent management company, Lancer Property Asset Management, who were also its beneficial owners, implemented a number of changes to their terms and conditions. These included new rights to a guaranteed bonus of 50% of salary and more favourable termination provisions. The variations to their contracts were made some six weeks before the transfer. It was subsequently agreed that if any of them did not transfer to the new management company, their contracts would revert to the previous terms. The employment judge concluded that these changes had been made “by reason of the transfer”.
All four claimants were dismissed shortly after the transfer and brought proceedings claiming, among other things, contractual termination payments based on their revised contracts. The employment judge dismissed this element of their claim, because the changes to their contracts had been made by reason of the transfer and were therefore void under the TUPE Regulations.
On appeal, they argued that previous case law indicated that such contractual variations were not void where the variations were in the employees’ favour. The EAT said that while some earlier decisions may have left this point open, there had not been a case that directly addressed a comparable situation. In addition, although there is 2014 Guidance from BEIS to the effect that changes which are “entirely positive” are not prevented by TUPE, this could not be regarded as definitive, since it had no legal status.
The EAT noted that an earlier decision from the European Court of Justice indicated that the underlying EU Directive “does not aim solely to safeguard the interests of employees in the event of transfer of an undertaking, but seeks to ensure a fair balance between the interests of those employees, on the one hand, and those of the transferee, on the other". Based on that guidance, and the literal reading of the TUPE Regulations (which provide that “any purported variation” made for a transfer-related reason is void) the EAT has upheld the employment judge’s ruling and dismissed the employees’ appeal on this point.
While the underlying facts are unusual, it has long been a concern in an outsourcing context that the incumbent contractor can seek to punish commercial rivals by implementing last minute uplifts to the terms and conditions of transferring staff. Few examples will be as blatant as this one, but this decision (subject to any appeal) will provide some additional protection for incoming contractors.