TUPE: Contractual variations void despite being beneficial to employee

22nd May, 2020 by Hannah Ball

In Ferguson and ors v Astrea Asset Management Ltd, the EAT has confirmed that variations to an employment contract are void if the sole or principal reason for the variation is a TUPE transfer, even where the variations are beneficial to the transferring employee.

The claimants were four directors of LPAM Ltd, an estate management company. In September 2016, LPAM Ltd were given notice by its only client that its contract for estate management services would be cancelled and the services instead provided by Astrea Asset Management Ltd (AAM Ltd). The transfer of services from LPAM Ltd to AAM Ltd amounted to a service provision change TUPE transfer and all four directors were in scope to transfer to AAM Ltd.

Two months prior to the transfer, the claimants made variations to their employment contracts that were significantly beneficial. The variations included a guaranteed annual bonus of 50 per cent of their salary, a guaranteed termination payment calculated with reference to their length of service and a 24-month notice period. The variations were apparently to compensate the claimants for the loss of the dividends they received from LPAM Ltd.

Subsequent to transferring to AAM Ltd, the four claimants were dismissed and they sought to enforce the termination payments due pursuant to their varied contracts. AAM resisted those claims arguing that the variations relied on were void by operation of TUPE.

Dismissing the claims, the Employment Tribunal held that the sole or principal reason for the variations was the TUPE transfer to AAM Ltd and they were therefore void. The EAT upheld that decision adding that, properly interpreted, the restriction on variations to contracts imposed by TUPE included variations that were beneficial to the employee. In any event, the variations in this case were void given the general principle of EU law that it cannot be used for abusive of fraudulent means.

Hannah Ball comments:

"While the facts of this case are unique, it helpfully confirms as a general principle that all variations to employment contracts are void where the sole or principal reason for the variation is a TUPE transfer regardless of whether they are beneficial to the employee. An employer remains able to vary contracts in connection with a TUPE transfer, but there must be a permitted economic, technical or organisational reason entailing a change in the workforce. Such variations can pose risks for transferee employers and therefore require proper consideration. If you would like to discuss similar issues you are dealing get in touch with a member of the team."

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