Employment Law Cases

Ferguson v Astrea Asset Management Ltd

When employees improved their contractual benefits in view of a pending TUPE transfer these variations were void.

Regulation 4(4) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) provides that a variation of contract will be void if the sole or principal reason is ‘the transfer’. This wording is relatively recent, having come into force in January 2014 in respect of transfers occurring on or after that date.

Background

Mr Ferguson and three of his colleagues were all senior employees of L, a property management firm looking after a substantial portfolio in Mayfair on behalf of BSE. In September 2016 BSE gave notice to terminate L’s management agreement, with AAM taking over the management of BSE’s portfolio from the end of September 2017 (a change of service provision to which TUPE applied). In July 2017, Mr Ferguson and his colleagues varied their employment contracts which gave them new rights to guaranteed bonuses of 50% of salary, new entitlement to termination payments of a month’s salary for each year worked, and enhanced notice periods. These varied contracts were supplied to AAM as part of the employee liability information.

The transfer went ahead and AAM dismissed all four employees on or soon after the transfer for gross misconduct. They brought various tribunal claims including for termination payments based on the varied contracts.

The tribunal made various findings about the fairness of the dismissals and/or whether all four had transferred but the real point of interest was the contractual changes pre-transfer – were they valid? No held the tribunal – they were void by virtue of reg. 4(4). Mr Ferguson and his colleagues appealed. They argued that reg. 4(4) only applies to changes adverse to an employee.

EAT decision

The appeal was dismissed.

Regulation 4(4) applies to any contractual change and not just those adverse to employees. The EAT’s reasons for holding thus were:

• Such an interpretation was consistent with the Acquired Rights Directive (on which TUPE is based) whose aim is to safeguard employees’ rights – this connoted the prevention of something negative or undesirable rather than improving something or making it better.
• It was consistent with UK case law – the EAT distinguished this case from that of Regent Security Services Ltd v Power on the basis that there the contractual variation occurred after the transfer, reg. 4(4) wasn’t in force at that time, and nothing said by the Court of Appeal suggested that advantageous changes cannot be deemed void.
• Such an interpretation of reg. 4(4) avoids difficult questions which would otherwise potentially arise as to whether a (purported) variation is or is not adverse to the employee – and also doesn’t prevent the employee enjoying other protections under TUPE.

Link to judgment: https://www.bailii.org/uk/cases/UKEAT/2020/0139_19_1505.html

Comment

This decision brings a common-sense approach to TUPE situations and as the judgment makes clear, it takes away the need to examine every change to decide if it is adverse to the employee or not. However, just as importantly, it gives protection to a transferee in exactly this kind of situation, where benefits and notice periods are increased by senior employees who know their time is likely to be limited in any new organisation. Well drafted outsource agreements will always contain a provision that no changes to terms and conditions will made by the service provider once notice has been served, to avoid this situation, but this gives added protection.