May 15, 2020
The most interesting issue in this case is concerned with what happens when senior employees of the transferor substantially improve the terms and conditions of their employment just before the transfer so as to seek to fix the transferee with these enhanced terms.
Are such changes void under Reg 4(4) or for some other reason.
L Ltd is a property asset a management company managing a substantial property portfolio in Mayfair, London on behalf of BSE. The claimants were the directors and senior employees of L Ltd. K was the CEO, F was head of Asset Management. Other claimants held senior positions. In September 2016 BSE gave the required 12 months’ notice to terminate L’s management agreement. AAM was to take over management of BSE’s portfolio from the end of September 2017. In July 2017 the claimants decided to ‘update’ Ls’ staff contracts. These updated contracts gave:
- new rights to guaranteed bonuses of 50% of salary;
- New entitlements to termination payments of a months’ salary for each year worked;
- in some cases, enhanced notice periods.
These updated contracts were supplied to AAM after the employee liability information was supplied in August 2017. In an email sent to other directors of L Ltd, K said that if any of them did not transfer to AAM then they would revert to their previous terms, and all agreed to this. When the changes came to light around the time of the transfer all the claimants were dismissed for gross misconduct by AAM. They brought claims for unfair dismissal, notice pay, and unauthorised deduction from wages and reserved the right to bring further claims in the civil courts.
The Employment Tribunal Decision
There were various findings in relation to unfair dismissal and failure to consult but the significant feature of this case concerns the contractual change implemented shortly before the transfer.
The ET held that two of the claimants had not transferred to AAM and in respect of F and K, who had transferred, the terms of the new contracts were void under Reg. 4(4) because they were varied by reason of the transfer.
The Employment Appeal Tribunal Decision
The claimants appealed on the contract issue on the following grounds that Reg 4(4) only applies to changes adverse to the employee (having particular regard to Power v Regent Security Services Limited  ICR 442). Further insofar as AAM sought to rely on the EU ‘abuse principle’, (on which there were unclear findings by the ET), this had no application on the facts.
The EAT (HHJ Shanks) held
That Reg 4(4) applies to any change and not just those adverse to employees. This interpretation is: (i) Consistent with the Directive which is to safeguard employee’s rights; (ii) Not contrary to English of EU case law, (Regent was distinguished on the basis that the contractual variation occurred after the transfer and Reg 4(4) was not in force at that time and reg 12 of the 1981 TUPE regs was not the same wording, and nothing said by the Court of Appeal suggest that advantageous changes cannot be deemed to be void); (iii) Avoids difficult questions about whether a change is or is not advantageous; (iv) Does not prevent the employee enjoys other protections within TUPE; (v) Consistent with purpose of TUPE and; (vi) the literal wording of Reg 4(4).
Turning to the EU abuse principle, this is the principle in EU law 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’ case was that it did not apply on the facts.
There are essentially two requirements for the abuse principle to apply. First there must be objective circumstances which show that, despite formal observance of EU rules, the purpose of the rules had not been achieved, and; secondly, 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 of these requirements applied. The contractual changes did not in fact safeguard the employees rights but enhanced them therefore the purpose of TUPE had not been achieved rather some other purpose had (namely to enhance terms and conditions). Further, there was ample material to satisfy the second condition that there was an intent to obtain an advantage.
Link to EAT Judgment
Link to ET judgment