The Employment Appeal Tribunal has recently considered an appeal by Ponticelli UK Ltd against an Employment Tribunal decision, which found that the claimant’s right to participate in a share incentive plan did transfer under TUPE, and Ponticelli were required to provide an equivalent share incentive plan to the claimant.
Facts:
On 1 May 2020, Mr Gallagher’s employment transferred from Total Exploration and Production UK Ltd (“TEPUK”) to Ponticelli UK under TUPE. While at TEPAK, Mr Gallagher participated in a share incentive plan (“SIP”), which was contained in a separate document and not referred to in his contract of employment. TEPUK’s explanatory booklet about the SIP stated: “If the business, or part of the business…in which you are employed is sold, then your shares must be sold or transferred to you or into [TEPUK’s] vested share account within 90 days from the date of cessation of your employment.”
After the transfer, Ponticelli informed Mr Gallagher that they were not going to provide a SIP post tranfer, and Mr Gallagher would receive a one-off payment of £1,855 as compensation. Mr Gallagher applied to the tribunal for a determination that he was entitled, as a Ponicelli employee, to be a member of a SIP equivalent to the TEPUK plan. He argued that his right to participate in an equivalent SIP transferred to Ponticellli under TUPE.
Outcome:
At tribunal, the Judge found Mr Gallagher’s right to participate in the SIP was part of his overall financial package and was caught by the wording of reg 4(2)(a) of TUPE and a right under or in connection with his employment. Therefore, he was entitled to participate in a SIP of comparable value. The tribunal made a declaration that his contract of employment should reflect that obligation. Ponticelli appealed.
The EAT rejected Ponticelli’s appeal. The Judge held that the SIP Mr Gallagher entered into, was a contract containing mutual rights and obligations, and that he was only entitled to join the SIP because he was an employee. Therefore, the rights arose “in connection with” his contract of employment and did transfer under TUPE.
Comment:
Employers typically try to ensure that share schemes are kept separate from employees’ contracts of employment and that they are not contractual. In this case, the EAT found that the right to participate in a SIP was a right in connection with a transferring employee’s employment contract, and that right transferred under TUPE. This is potentially a significant cost burden for a transferee, and could cause practical difficulties where the transferee does not operate similar share schemes for its existing employees.
It is unclear whether obligations under the SIP could have been validly terminated or varied pre or post transfer. Practitioners had previously assumed that TUPE intended to put the employer and the employee in the same position as far as possible. Therefore, if the previous employer had the power to terminate the plan, the new employer would have the same power. This is now in doubt.
In practical terms, it is important for transferees to establish whether a SIP is in place and explore the details during the due diligence process, to determine the extent of their post-transfer obligations and address any issues before the transfer takes place.
If you have any queries regarding this case and its impact, please do get in touch.