It is well known that “detrimental” changes to employment contracts made by a transferee after a TUPE transfer has taken place will not be enforceable if the reason for the change is the transfer itself (usually motivated by a desire to “harmonise” contract terms with existing employees).
The question is what happens when the change is beneficial to the transferring employee and, as a follow-up, does it make a difference if the change is made before the transfer…?
In the first appeal case to consider pre-transfer changes to employment contracts, Ferguson and ors v. Astrea Asset Management Ltd,the Employment Appeal Tribunal unsurprisingly concluded that before or after the transfer makes no difference. On the more interesting point, it decided that contract variations which are beneficial to the transferring employees are also void if made by reason of the TUPE transfer.
The facts of the case are relatively unusual. The claimants were the four directors and owners of the transferor. Before their employment transferred, the claimants made changes to their contracts of employment to their own advantage (including generous bonuses and termination entitlements). When the new employer discovered the new terms, it dismissed two of the directors for gross misconduct and denied the remaining two directors eligibility to transfer to them under TUPE. The ex-directors made various claims including claims for payment of the enhanced terms. The Employment Tribunal rejected their claims and they appealed.
The EAT dismissed the ex-directors’ appeal, finding that TUPE is designed to protect the rights of transferring employees, not improve them. In this case, the changes were clearly connected to the transfer and were void even though they were to the advantage of the transferring employees. The EAT distinguished an earlier case which allowed beneficial changes as the TUPE regulations had subsequently changed. In addition, the EAT said the contractual changes here were invalidated by the general abuse principle of EU law – there had been no legitimate commercial purpose in the contract variation.
Employers and employees should be cautious of contract changes which appear to be made because of a connection to a TUPE transfer – whether before or after that transfer takes place. Such changes are unlikely to be enforceable, unless there is some legitimate commercial purpose behind them which is distinct from the transfer itself.
Of course, beneficial contract changes made after a transfer has taken place are unlikely to be challenged by the transferring employees. This decision would suggest that “cherry picking” by employees is no longer feasible, but the facts here appear to have been quite extreme so it is perhaps unsafe to rely on the same approach being taken to beneficial changes introduced by a transferee employer after the transfer.