TUPE: beneficial changes to contract void

Ferguson and others v Astrea Asset Management Ltd UKEAT/0139/19

Why care

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) provide that changes made to contracts will be void where the principal reason for the change is a TUPE transfer. Typically, this principle applies to prevent detrimental changes being made to employees' contracts. However, a point which arises less often is whether this principle operates to prevent changes being effective where they are made to the employee's benefit. According to the EAT, the answer is yes, the principle can operate both ways, it will apply even where the changes made are to the employee's advantage.

The case

Four owner directors of a company lost a contract to an incoming service provider (the transferee in a service provision change). Just before the transfer, they varied their own contracts, giving themselves enhanced bonuses and severance payments. When the transferee discovered this, it refused to take some of the employees on and dismissed others for gross misconduct. The key finding of the decision is that the changes were held to be void; the sole or principal reason they were made was because of a transfer. The EAT rejected arguments that, based on previous case law, only detrimental changes are void.

What to take away

This case is rather unusual in that it concerns directors who were clearly acting in an abusive way towards the transferee and who were looking to make an unscrupulous gain for themselves. However, it does clarify that it is not only detrimental changes that will be void. The state of the law in this area is complex and advice should always be sought where changes are being made following a TUPE transfer. A Court of Appeal case, Power v Security Services, is an example of changes successfully being negotiated with employees following a TUPE transfer and was held to be distinguishable.