The law says that variations to a contract are void if the sole reason for the variation is because of a Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) transfer. The Employment Appeal Tribunal (EAT) has held in Ferguson and ors v Astrea Asset Management Ltd that the variations made to the contracts of four employees were void, despite the fact that they were advantageous to them.
The four claimants in this case were directors and employees of a company, Lancer, which managed a number of properties in Mayfair and Knightsbridge, known as the Berkeley Square Estate, worth about £5 billion. This was the sole purpose of the business.
On 20 September 2016, the Estate owners served a year's notice of termination under the management agreement and Astrea Asset Management Ltd was formed in late 2016 to take over. It was agreed that the transfer from Lancer to Astrea was governed by the TUPE.
After failing to persuade the owners to extend their agreement, the directors decided in June 2017 to update their contracts with Lancer giving them guaranteed bonus payments and generous new termination payments. Astrea was notified of the new contract terms as part of the requirement to provide “employee liability information” under TUPE.
On 25 September 2017, Astrea wrote to the four men, dismissing them for gross misconduct. They brought tribunal claims arguing, among other things, that they were entitled to the contractual termination payments.
Regulation 4(4) of TUPE states that any variation of a contract is void if the sole or principal reason for the variation is the transfer itself.
The tribunal judge held that the new terms had no legitimate commercial purpose. Instead, they were designed to compensate the claimants for loss of Lancer's business and involved dishonestly taking undue advantage of TUPE by awarding themselves payments that would have to be met by Astrea.
The judge therefore concluded that the new contractual terms were void “considering regulation 4(4) TUPE in the light of the [EU] abuse of law principle" which says that claimants cannot rely on EU law for “abusive or fraudulent ends.”
The claimants appealed.
The EAT held that, as regulation 4(4) covers all contractual changes, not just those that are adverse to the employee, these changes were void because they had been made by reason of the TUPE transfer.
Alternatively, Astrea could rely on the EU abuse of law principle to prevent the claimants from relying on the new contractual terms on two grounds:
- the purpose of the EU rules was to safeguard employee rights, not to substantially improve them; and
- the intention of the claimants was to obtain an improper advantage by artificially obtaining variations to their contracts of employment with Lancer in contemplation of the transfer.
This interpretation was clearly consistent with the main purpose of the underlying Acquired Rights Directive (on which TUPE is based) and EU case-law.
Distinguishing Power v Regent Security Services Ltd on the basis that the change in that case took place after the transfer and was put forward by the employer, the EAT was satisfied that its conclusion was consistent with UK case law.
Finally, it held that their conclusion avoided difficult questions which might otherwise arise as to whether a (purported) variation was or was not "adverse" to the employee. Although courts could leave it open to employees to choose which of the terms to rely on, this would open up the prospect of contractual rights being dependent on the subjective view of the individual employee, who might change their mind from time to time.
The EAT dismissed the appeal.