There were four claimants who were company directors and employees of LPAM Ltd.  This was an estate management company with one client, an estate of considerable value in Mayfair and Knightsbridge.  In 2016, the estate owners gave notice of termination of the management contract with LPAM Ltd and stated that the respondent, AAM Ltd, would take over. The change of service provider was regarded as a transfer which the Transfer of Undertakings (Protection of Employment) Regulations 2006 applied.

Two months prior to the transfer taking place, the claimants varied their own employment contracts to their advantage.   The transfer was going to remove their status as director-shareholders and they would only be retained as employees. Therefore, the change was intended to compensate them for the loss they would have suffered from not getting dividends any longer.  The changes gave a right to a guaranteed annual bonus, a termination payment and a 2 year notice period.   The issue arose when the respondent dismissed all four employees soon after the transfer took place and the claimants claimed the termination payments in their varied contracts.

At first instance, it was held that the claimants could not rely on the varied terms as the purpose of the Regulations were to ensure that directors of companies could not agree new terms that would impose liabilities upon the transferee.  It was held that the clear intention of the claimants in varying their terms was to obtain an unfair advantage when the transfer took place.  Accordingly, Regulation 4(4) was used which voids any new terms that are made by reason of the impending transfer.

On appeal, the EAT stated that Regulation 4(4)(b) must be examined literally at first.  It states that a variation in contractual term is void if it is:

a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce.

Such a literal interpretation would clearly stop the claimant’s claim considering that it was not an economic, technical or organisational reason for the change.  However, the EAT also stated that they had to bear in mind the purpose of the EU Directive which was to safeguard the rights of the employee.  Therefore, it is designed to stop negative changes rather than positive ones.  In spite of this aim, it was held by the EAT that the use of ‘any purported variation’ in the Regulations meant that it would cover both adverse and beneficial changes to the employee.  For this reason, the claimant’s appeal was dismissed.  It was also noted by the EAT that even if the claimant had shown that Regulation 4(4) did not apply they still would not have succeeded as their purported variation would have been an abusive practice as they sought to obtain an undue advantage.

Practical Lessons

This case demonstrates that despite the objective of the TUPE regulations being to protect the employee’s rights it does not mean that they can also rely upon beneficial changes.   This is because the strict wording of Regulation 4(4) covers all purported variations.   This provided a fair result in this case considering that the four claimants had sought to obtain a wholly unfair result by changing their terms thinking that the transferee would be bound by them.  Therefore, in a TUPE situation the parties must be mindful of any changes and whether they will remain valid.
https://www.gov.uk/employment-tribunal-decisions/mr-duncan-ferguson-and-others-v-astrea-asset-management-ltd-and-others-2208175-2017-and-others