Under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE), on a sale of a business, employees working in the business transfer to the new owner with their existing terms and conditions and continuity of employment intact.
On 4 January 1999, Mrs Jackson was appointed finance manager with Ci (UK) Limited, which later became an associated company of Computershare Investor Services (CIS). There were no terms relating to enhanced redundancy or severance payments in Jackson’s employment contract with Ci (UK). In June 2004, Jackson’s contract of employment transferred to CIS under TUPE 1981. Jackson was made redundant in 2005.
CIS operated a dual enhanced severance pay scheme: employees who ‘joined’ CIS before 1 March 2002 were eligible to receive more generous benefits than employees joining CIS after that date. The parties agreed that the terms of the severance pay scheme were incorporated into Jackson’s contract of employment following transfer to CIS. However, Jackson argued that she should be afforded the benefit of the pre-2002 terms because TUPE operates in such a way as to treat her as having continuity of employment with CIS dating back to 1999.
Decision The employment tribunal agreed with Jackson and said that she should be treated as if her employment with CIS had started for all purposes in 1999.
On appeal, the Employment Appeal Tribunal (EAT) and the Court of Appeal held that this interpretation was incorrect the fact that Jackson was to be treated for statutory purposes as having continuity of employment back to 1999 did not affect her contractual entitlement to a scheme that she did not benefit from prior to the transfer.
The EAT and the Court of Appeal agreed that TUPE does not give a transferred employee access to employment benefits they did not have prior to the transfer.
Key implications While this case was decided under TUPE 1981, the principle applies equally to transfers under TUPE 2006, as the wording of the relevant provisions is unchanged.
The key issue in this case was when Jackson, as a matter of fact, actually ‘joined’ CIS (the term used in the scheme to determine eligibility). The tribunal found that Jackson had ‘joined’ CIS on the transfer in June 2004, and the Court of Appeal therefore found that she was not entitled to the more generous redundancy terms.
Had CIS operated an enhanced scheme using length of service as a criteria, which is much more common, the Court of Appeal’s decision may have been different.
To avoid any confusion arising over entitlement to benefits following a transfer, if employees are offered new benefits following a TUPE transfer, the new employer should make it clear how the transferring employees will be treated for the purposes of those new benefits. It should also clarify whether their employment will count as continuous for all purposes, or whether for the purposes of contractual benefits their employment will be treated as having commenced at the transfer date.
While employers are not obliged under TUPE to offer enhanced benefits to transferring employees following a transfer, those who do not extend their more generous benefits run the risk of equal pay claims. The extent to which TUPE provides employers with a defence to these claims remains to be seen.
Rebekah Martin, Associate, Addleshaw Goddard