The directors of a property management company ran into a brick wall when they tried to boost their benefits package before transferring to a new employer under the TUPE employment protection regulations.
TUPE – which stands for the Transfer of Undertakings (Protection of Employment) Regulations – are rules designed to protect jobs and safeguard contractual terms for employees when a business transfers to new ownership or a contract is placed with a new service provider. But while it has been clear that the new employer must not change terms to disadvantage an employee, now the Employment Tribunal has ruled that changes made solely for the transfer should not advantage an employee either.
The case involved Lancer Property Asset Management, which provided estate management services to one large client, Berkeley Square Estate, who decided to move to a new service provider. As a result, the directors of Lancer were to become employees of the new provider, Astrea Asset Management Ltd under the TUPE regulations.
But in preparing for the transfer, the directors decided to award themselves a salary increase and generous new terms for bonus and termination payments, together with a 24-month notice period. The new employer disputed the terms, sacking two of the directors for gross misconduct and refusing to pay the enhanced benefits to the other directors. The resulting dispute ended up at the Employment Appeal Tribunal (EAT) with the directors arguing that the TUPE regulation regarding pre-transfer variations was for situations where the change was detrimental to the employee.
“TUPE is about ensuring fairness and continuity, so it’s no surprise that anything that makes an employee worse off would not be allowed, but being better off hasn’t been tested in this way before,” explains James Twine – Partner & Head of Business Services.
“The EAT tribunal said that all contract variations which are connected to a transfer are void, whatever the outcome, and the objective of TUPE is to protect, not enhance. The tribunal also highlighted that no legitimate commercial purpose could be demonstrated for the changes, meaning they infringed the general abuse principle of EU law and were unenforceable.”
The TUPE regulations are designed to protect employees when a business transfers or where there is a change in service provider. In a business transfer, where a business is sold as a going concern, and continues to trade in the same way after the transfer, then the employees would be protected.
But as in this case, TUPE may apply also when a service provision change arises – such as when a company ends a long-term contract for the supply of services and takes the services in-house or awards the contract to another service provider. If the original service provider has employees whose role is to service that contract exclusively, and the new service delivery remains fundamentally the same, then TUPE may mean that those employees become employees of the company or the new service provider and continue to fulfil their roles, as happened with Lancer Property Asset Management.
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Partner, Solicitor, Head of Business Services