We asked the employment team at Tughans LLP to provide practical answers to unusual, sensitive or complex work-related queries. We call this feature “How do I handle it?”

The articles are aimed at HR professionals and other managers who may need to deal, from time to time, with the less commonplace disputes at work; issues that may, if handled incorrectly, lead to claims for discrimination, constructive dismissal or some other serious difficulty. 

TUPE transfers can often generate uncertainty for employees and questions about how TUPE will impact their terms and conditions, and especially benefits, are common in the period following a transfer, with employees often worried about attempts to remove or dilute benefits which are particularly generous.  

TUPE preserves employees' existing contractual terms and conditions of employment, which transfer automatically to the incoming employer, who assumes the original employment contract as if they had entered into it. In basic terms, these employees’ contractual entitlements, such as salary, holiday and notice provisions, will transfer automatically to you. 

If their employment contracts contain other contractual benefits, such as overtime, commission or occupational sick pay, these will transfer as well. TUPE prevents these benefits from being negatively varied as a result of the transfer, even if the employees agree to the change. This is aimed at preventing the incoming employer from harmonising terms immediately post-transfer, unless the change is entirely positive (such as providing a new benefit or salary increase). 

It can be necessary to look beyond the contract itself and identify any other fringe benefits which may transfer. Regulation 4(2) states that “all the transferor’s rights, powers, duties and liabilities under or in connection with any such contract shall be transferred” to the new employer. This can include benefits which are not contained within the actual written contract of employment, such as benefits which have obtained contractual status through custom and practice. For example, if employees have received customary overtime rates or shift allowances, or other benefits, these may have become implied contractual terms over time, and these would transfer to you. In certain industries, employers may have contractual procedures which will transfer, which can often include contractual procedures around redundancies and redundancy pay.

Quite often there will be limited information available about long-standing customary arrangements and it will be difficult to establish the exact factual position on how long a benefit has been provided for and on what terms. Ultimately, only a tribunal can decide whether a benefit has obtained implied contractual status and the burden of proof would be on the employee to prove it has. TUPE can only transfer existing terms and conditions, rather than creating new ones, so if a benefit is discretionary and non-contractual, it does not transfer. For example, if the previous company had a discretionary bonus scheme which is different from yours, you can replace it post-transfer with your scheme.  

Where an employee had a right to participate in a particular benefit, such as insurance cover or an incentive scheme, this assessment can become more complex. In 2002, the EAT case Mitie Managed Services Limited v French established the general principle that, where an employer is not able to provide access to the exact same scheme as the previous employer, it must still provide access to a substantially equivalent scheme. The EAT warned that the purpose of TUPE is to protect employees’ rights and should not be given a narrow interpretation. 

This principle was followed more recently in the 2023 case Ponticelli UK Ltd v Gallagher. Here, the employment tribunal (and eventually the Scottish Court of Session on appeal) considered whether an employee’s right to participate in a share incentive plan transferred under TUPE. The employer argued that it had not transferred, given that the share incentive plan was contained in a separate agreement and not the employment contract. However, the court concluded that the employee’s right to participate in the scheme arose “in connection with” their employment and did transfer under TUPE. The new employer could not continue to provide the exact scheme provided by the former employer, but was required to provide a substantially equivalent alternative. 

Following these decisions, you should carefully consider any benefits that may be connected to the employment contract, even if they are not expressly described as contractual. In the event a non-salary benefit has transferred, the practical starting point is to consider whether it can be replicated. In some cases, this may be relatively straightforward. For example, if the outgoing employer provided standard private medical insurance, you may be able to include the transferring employees in an equivalent scheme. However, it can be more difficult where benefits are closely tied to the previous employer’s specific circumstances, such as a share incentive scheme, and the question of how to provide a substantially equivalent benefit can be difficult. 

Usually however, the most common areas of dispute are around the right to customary benefits such as particular shift, overtime or allowance arrangements, and the main issue will be assessing the likelihood that they have obtained contractual status through custom and practice. You will need to review any relevant records as well as the “employee liability information” you received during the TUPE process.  

If you want to make changes to resolve the issue, you should be mindful that variations to transferring employees' contractual terms will be legally void where the TUPE transfer is the sole or principal reason for the change. There are exceptions to this rule for changes required for economic, technical or organisational reasons which entail changes in the workforce. This is another potentially complex area, especially in Northern Ireland, which did not introduce certain employer-friendly reforms made back in 2014 in Great Britain. 

Resolving these issues is not always straightforward and can quickly become complex. They can pose clear challenges for fostering positive relationships and trust with your new employees, and unfortunately may need careful consideration. 

This article was provided by Emma Doherty, an Associate Director in the employment team at Tughans LLP. Emma works exclusively in employment law. You can contact her at: 

Phone: 028 9055 3300
Email: emma.doherty@tughans.com
Website: www.tughans.com