Contractual Skulduggery and TUPE

The TUPE regulations protect the rights of employees whose employment is transferred. This includes the right not to be unfairly dismissed because of the transfer and the right not to have their contractual terms changed.

In Ferguson and ors v Astrea Asset Management Ltd, the EAT was asked to consider whether contract variations beneficial to an employee were void if made by reason of a TUPE transfer.

The Berkeley Estate consists of some 140 properties in Mayfair and Knightsbridge, currently worth an estimated £5 billion and owned by the Abu Dhabi royal family. Lancer Property Asset Management Ltd had managed the estate since 2004. In September 2016, the estate owners gave 12 months’ notice of termination of the management contract to Lancer. Astrea Asset Management Ltd, another estate management company, were appointed to take over the contract with effect from 29 September 2017.

The transfer was a service provision change and governed by TUPE. As a result, Lancer’s employees, which were involved in the management of the estate’s assets, automatically transferred to Astrea on the same terms and conditions they enjoyed at the date of transfer.

Two months before the date of transfer, the directors of Lancer varied their own contracts in their own favour, giving themselves generous guaranteed bonuses and termination payments.

The transfer took place, but having discovered the contract variations Astrea quickly dismissed all four Lancer directors for gross misconduct. They made various tribunal claims, including for termination payments based on the varied contracts. The court had to consider whether the contract variations agreed before the transfer were valid.

An employment judge found that the claimants could not rely on the varied terms. She considered that the purpose of TUPE was not to allow owner-directors to agree new terms that would fix the transferee with substantial additional liabilities. The claimants’ aim in agreeing the new terms was to obtain an undue advantage and that was not a legitimate commercial purpose. In these unusual circumstances, the employment judge concluded that the new terms were void. The claimants appealed.

Dismissing their appeal the court found that the purpose of the TUPE regulations is to ‘safeguard’ employees’ existing rights, not to improve them.

The court also found that the EU abuse principle applied. This means that EU law cannot be relied on for abusive or fraudulent ends. It was not disputed that this principle could apply to TUPE claims but the claimants’ argued that it did not apply on the facts.

For the abuse principle to apply there are two elements. First there must be objective circumstances which show that, despite formal observance of EU rules, the purpose of the rules had not been achieved. Secondly, there must be a subjective element consisting of an intent to obtain an advantage from the EU rules by artificially creating the conditions necessary for their application.

The EAT held that both requirements applied. The contractual changes did not safeguard the employees’ rights but substantially improved them, therefore the purpose of TUPE had not been achieved; rather, some other purpose had been achieved (i.e. to enhance terms and conditions). Finally, there was plenty of material to satisfy the second condition that there was an intent to obtain an advantage.

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Although every effort has been made to ensure the accuracy of the information contained in this blog, nothing herein should be construed as giving advice and no responsibility will be taken for inaccuracies or errors.

Copyright © 2020 all rights reserved. You may copy or distribute this blog as long as this copyright notice and full information about contacting the author are attached. The author is Kate Russell of Russell HR Consulting Ltd.