Locations
The Court of Session has upheld the decisions of the Employment Tribunal and the Employment Appeal Tribunal, finding that an employee's right to participate in a share incentive plan (SIP) may be transferred to a new employer under TUPE.
This is the case even though the right to participate in the SIP was entered into voluntarily by the employee under a separate agreement and the arrangement was not referred to in the employee's contract of employment.
Accordingly, there was an obligation on the new employer to implement a substantially equivalent scheme for the transferred employees.
Context
Mr Gallagher was formerly employed by Total Exploration and Production UK Limited (Total).
In 2018, he applied to join a SIP operated by Total. In doing so, he entered into a "Partnership Share Agreement" with Total and the trustees of the SIP.
Participation in the SIP was voluntary and there was no reference to it in Mr Gallagher's contract of employment.
When Ponticelli UK (Ponticelli) acquired Total, Mr Gallagher's membership of the SIP ended and the shares held on his behalf within the SIP were transferred to him.
Ponticelli notified Mr Gallagher that they would not continue to provide a SIP and they would pay him a one-off payment of £1,855 as compensation.
Mr Gallagher sought a determination from the Employment Tribunal that he was entitled to be a member of a SIP equivalent to that offered by Total because his right to participate in the SIP had transferred to the new employer under TUPE.
Accordingly, there was an obligation on the new employer to implement a substantially equivalent scheme for the transferred employees. Mr Gallagher was successful in the Employment Tribunal, and subsequently the Employment Appeal Tribunal.
Ponticelli appealed to the Inner House of the Court of Session arguing that TUPE only transferred rights “under” or “in connection with” a contract of employment and so did not include benefits available to employees under contractual arrangements that are wholly distinct from the contract of employment, and Mr Gallagher's right to participate in the SIP was one such benefit.
Decision
The Court found in favour of Mr Gallagher and dismissed Ponticelli's appeal. The Court agreed with the Tribunals that the rights and obligations under the scheme formed an integral part of Mr Gallagher's overall financial package.
This was illustrated by the fact that the Partnership Share Agreement confirmed that contributions to the SIP were made through salary deduction and other optional benefits under the SIP were linked with the employer's bonus scheme.
Accordingly the right to participate in the SIP was “in connection with” Mr Gallagher's contract of employment and so Mr Gallagher's right to participate in the SIP had transferred to the new employer under Regulation 4(2)(a) of TUPE.
There was an obligation on the new employer to implement a substantially equivalent scheme for the transferred employees. It is not known at this stage whether Ponticelli intends to appeal further.
Conclusion
This ruling confirms that TUPE can apply to the share plan benefits of employees even if these benefits are included in a separate agreement and are not referred to in the employment contract.
Any buyer of a business subject to a TUPE transfer should assess any employee share plan awards granted in the acquired business and whether they may have obligations to operate an equivalent plan for these employees following the TUPE transfer.
The case is another in a line of rulings in recent years demonstrating the courts' willingness to take a wide purposive approach when applying TUPE, ensuring that employees are not financially disadvantaged when their employer business is sold.