Employment contract terms before TUPE takes place

09 June 2020

Can a Transferor change employment contract terms that then become beneficial to the employees before TUPE takes place?

Where on the facts the Transfer of Undertakings (Protection of Employment) Regulations 2006 as amended applies (TUPE), then the employees of the outgoing employer (the transferor) automatically transfer to the incoming employer (transferee) at the point of transfer and carry with them their continuous service together with their terms and conditions of employment.

The transferee cannot change these employees terms and condition of employment other than in very limited circumstances falling with in economic, organization and or technical reasons where changes in workforce required thus cannot simply proceed to harmonise terms and conditions between the Tupe'd employees in-line with their existing employees.

Government guidance issued back in January 2014 explains that:                  

  • an economic reason may relate to the profitability or market performance of the transferee’s business
  • a technical reason may relate to the nature of the equipment or production processes which the transferee operates
  • an organisational reason may relate to the management or organisational structure of the transferee’s business

From the above, it is quite clear that it can be extremely difficult and problematic for the transferee to make changes to TUPE’d employees terms and condition of employment after transfer.  In Ferguson and Others v Astrea Asset Management Ltd 2020, the transferee refused to take on employees to be TUPE’d over to them as they discovered that the employees included employed directors of the transferor company who had varied their own employment contracts to provide for generous guaranteed bonuses and enhanced termination payments before the TUPE transfer was to take place.

The issue to be determined was whether such changes were void under Reg 4(4) of TUPE that states” “Subject to regulation 9 [which relates to variations where transferors are subject to insolvency proceedings], any purported variation of a contract of employment that is, or will be, transferred […], is void if the sole or principal reason for the variation is the transfer.”

After reviewing relevant case law, the EAT identified that TUPE was there to safeguard employee’s rights on a TUPE transfer but not to improve them and found that Reg 4(4) TUPE, applied to all contractual changes and not simply those adverse to an employee and thus to ensure a fair balance between the interests of TUPE’d employees and that of the transferee, the changes made by the directors to their employment contracts were therefore void.

Also, the EAT decided that the “EU Abuse Principle” rule could apply to TUPE where EU law cannot be relied on for abusive or fraudulent ends and the test was satisfied on the facts in the above case as to the directors conduct.

Despite the above, the case of Power v Regent Security Services does suggest that it might still be possible for a transferee to agree changes that are beneficial to an employee after a transfer has taken place.

The article is for general information purposes only and should you require any further assistance on the matter please do not hesitate to call our advice-line team on 01455 852028.

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