Does an incoming employer in a TUPE transfer have to provide a share incentive plan?

The case of Ponticelli UK Ltd v Gallagher provides a reminder to employers of the full scope of the TUPE regulations. TUPE provides that incoming employers must take on transferring employees on the same terms of employment they had with the outgoing employer. Changes can only be made in limited circumstances.

This can be straightforward to apply for wages and holidays. But what if the outgoing employer provided a share incentive plan but the incoming employer does not provide such a benefit? This case considered whether the incoming employer was obliged to provide the transferring employees with such a benefit.

When does TUPE apply?

Briefly, TUPE applies to:

• Business sales; and
• ‘Service provision changes’, including outsourcing, re-contracting and insourcing of service contracts, for example maintenance or cleaning contracts.

The facts

Mr Gallagher’s employment from Total to Ponticelli under TUPE. During employment with Total he was a member of Total’s Share Incentive Plan (SIP), which was a voluntary scheme and not in his contract.

A SIP is a type of employee share plan. SIPs enable businesses to invite eligible employees to acquire shares in the company.

Following his transfer, the shares held on Mr Gallagher’s behalf within the Total SIP were transferred to him as a departing employee and his participation it in ceased. Ponticelli offered him a one-off payment of £1,855 (that being twice his average contributions to the Total SIP over the last two years) as compensation for the fact that it was not going to provide a SIP post-transfer.

Mr Gallagher made a claim that his right to participate in a SIP transferred to Ponticelli under TUPE.

The ET upheld the claim and found that, after the transfer, the claimant was entitled to participate in a scheme which was of substantial equivalence or comparable value to that operated by the outgoing employer.

Ponticelli appealed and argued that as the SIP was not part of Mr Gallagher’s employment contract with Total, it did not arise either under the contract of employment or in connection with that contract (as per the wording of TUPE).

The decision

The Employment Appeal Tribunal (EAT) upheld the original decision. It held that even if the obligations under the SIP were not part of the contract of employment, they arose in connection with that contract for the purposes of TUPE as part of Mr Gallagher’s broader financial package. Therefore Mr Gallagher was entitled to a plan of substantial equivalence upon transfer to Ponticelli.

Key points for incoming employers

• For incoming employers in TUPE situations, the due diligence process should be thorough to ensure that the business is aware of any SIP obligations that might transfer. This should be identified at an early stage so the terms can be reviewed and the potential cost of providing a scheme of substantial equivalence can be budgeted for.
• Advice should be sought as to how to provide a scheme of substantial equivalence. For non listed companies this could be difficult to implement as they will not be able to offer a similar scheme if there is no market to easily trade shares.

Employers should also beware other employee benefits that might transfer as being in connection with the employment contract. For example, company car arrangements, other types of share schemes, cycle to work schemes and enhanced redundancy schemes.

If you have any questions about this article, please get in touch with a member of the Employment team.