The Court of Session in Ponticelli UK Ltd v Gallagher recently provided further clarification on what employment benefits transfer when employees transfer from one employer to another under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).
When an employee transfers from one employer to another under TUPE the rights and benefits they enjoy under their employment contract also transfer including any rights, powers, duties and liabilities under, or in connection with those contracts. Participation in a share scheme, is generally a non-contractual benefit and not included in the employee’s contract of employment. As such, the issue is whether employees who transfer under TUPE are able to claim that, because their old employer had such an incentive scheme, they are entitled to an equivalent one at their new employer. Although this is a case brought before the Scottish courts, it relates to TUPE and the Court of Session is the equivalent to the Court of Appeal in England and Wales and as such will be binding in the same way.
In Ponticelli UK Ltd v Gallagher, the Inner House of the Court of Session held that employee share incentive plans, even if explicitly stated to be non-contractual (and not referred to in the employment contract) arise “in connection with” the employee’s employment. They are therefore caught by TUPE and the right to participate in such a scheme should transfer As a result, the new employer is obliged to provide a scheme of substantial equivalence to the one the employee was a member of with their previous employer. This will clearly raise significant practical issues for transferees who do not already operate substantially equivalent schemes to transferors as well as a cost burden to the transferees. It is not yet known if Ponticelli intends to appeal further.
Thank you to Tor Walberg for his help in drafting this blog post.