Personnel Today
  • Home
    • All PT content
  • Email sign-up
  • Topics
    • HR Practice
    • Employee relations
    • Learning & training
    • Pay & benefits
    • Wellbeing
    • Recruitment & retention
    • HR strategy
    • HR Tech
    • The HR profession
    • Global
    • All HR topics
  • Legal
    • Case law
    • Commentary
    • Flexible working
    • Legal timetable
    • Maternity & paternity
    • Shared parental leave
    • Redundancy
    • TUPE
    • Disciplinary and grievances
    • Employer’s guides
  • AWARDS
    • Personnel Today Awards
    • The RAD Awards
  • Jobs
    • Find a job
    • Jobs by email
    • Careers advice
    • Post a job
  • Brightmine
    • Learn more
    • Products
    • Free trial
    • Request a quote
  • Webinars
  • Advertise
  • OHW+

Personnel Today

Register
Log in
Personnel Today
  • Home
    • All PT content
  • Email sign-up
  • Topics
    • HR Practice
    • Employee relations
    • Learning & training
    • Pay & benefits
    • Wellbeing
    • Recruitment & retention
    • HR strategy
    • HR Tech
    • The HR profession
    • Global
    • All HR topics
  • Legal
    • Case law
    • Commentary
    • Flexible working
    • Legal timetable
    • Maternity & paternity
    • Shared parental leave
    • Redundancy
    • TUPE
    • Disciplinary and grievances
    • Employer’s guides
  • AWARDS
    • Personnel Today Awards
    • The RAD Awards
  • Jobs
    • Find a job
    • Jobs by email
    • Careers advice
    • Post a job
  • Brightmine
    • Learn more
    • Products
    • Free trial
    • Request a quote
  • Webinars
  • Advertise
  • OHW+

Employment lawTUPE

TUPE regulations: Get a grip on TUPE share options, or else

by Ian Fraser 17 Oct 2008
by Ian Fraser 17 Oct 2008

When employee share options feature in TUPE transfers, major complications can arise.

Where Transfer of Undertakings (Protection of Employment) (TUPE) applies, the rights and liabilities of transferring staff automatically switch to the new employer on the same terms and conditions as applied under the original employment contract. Any attempt to change the terms and conditions is, broadly speaking, unlawful.

Most companies recognise and deal with these obligations on receipt of the standard employee liability information. What happens, however, when the transferring employee’s rights include staff incentives?

Where transferring staff have express or implied contractual rights to share incentives, they should be entitled to participate in “a scheme of substantial equivalence” that does not contain features the transferee can’t provide.

If the transferee does not provide said scheme, they could face claims for damages for breach of contract for the losses arising from an inability to participate in a share plan or constructive dismissal. Transferors might also face claims in anticipation of the transfer. However, replicating a transferor’s share incentive plans may be prohibitively expensive or simply not part of the ethos of the transferee.

Managing the risk

Transferees must identify the risks before they can manage them, and this may involve wider enquiries than the standard employee liability information provides, such as access to incentive scheme rules. Transferees can then: request an indemnity from the transferor in respect of potential claims brought by staff or request a price adjustment to take account of the risks or implement post-transfer share incentive arrangements or extend existing arrangements to the transferred staff. The first two options could be the easiest, but their viability depends on bargaining power.

Clearly, any risk of claims can be minimised where the new incentive arrangements broadly replicate existing ones. The risk is greatest if the transferee provides no replacement incentive arrangements. However, as the tribunals have not set guidelines as to what might be “substantial equivalence”, the middle ground is unclear.

Until guidelines are set, this will have to be judged on a case-by-case basis. However, transferees could take the approach that a basic replacement plan is sufficient and rely on the uncertainty of the substantial equivalence test to deter staff from bringing claims.

Tax issues

Transferees should also be aware of potential tax and national insurance contributions (NICs) liabilities that can arise where transferred staff retain share incentive rights in respect of shares in the transferor. The liability to account for income tax in respect of the incentives remains with the transferor. But, the liability to account for employer’s and staff NICs is passed to the transferee, who may not have a contractual right to withhold from employees’ salaries because it was not party to the original incentives contract.

The transferee should then seek an indemnity, from the transferor, in respect of any post-transfer NICs that arise due to the exercise or vesting of share incentive rights granted by the transferor, along with any related costs. The transferee should also require the transferor to notify it of the exercise or vesting of awards, so that it knows when it is required to account for NICs and so can claim under the indemnity â€“ otherwise, the transferee may have no means of knowing the withholding obligation has arisen.

Sign up to our weekly round-up of HR news and guidance

Receive the Personnel Today Direct e-newsletter every Wednesday

OptOut
This field is for validation purposes and should be left unchanged.

Key points

  • TUPE rules can apply to share incentives held by staff transferred at the time of an outsourcing transaction.
  • As non-compliance with TUPE can be costly, transferee companies need to assess the risks and manage them either at the time of transfer or through the introduction of replacement incentive rights.
  • Transferees also need to protect themselves against potential NIC costs arising in respect of share rights held by transferred employees.

With assistance from Jackie Cuneen, special counsel, K&L Gates

Ian Fraser

previous post
Friday podcast: it’s mainly men losing jobs; can HR be blamed for banks’ troubles; and Personnel Today launches its ditch the retirement age campaign
next post
Damages for breaching notice periods

You may also like

Fire and rehire: the relocation question

22 May 2025

Minister defends Employment Rights Bill at Acas conference

16 May 2025

CBI chair Soames accuses ministers of not listening...

16 May 2025

EHRC bows to pressure and extends gender consultation

15 May 2025

Contract cleaner loses EAT race discrimination appeal

14 May 2025

Construction workers win compensation claim against defunct employer

9 May 2025

Zero-hours workers’ rights to be extended from beyond...

8 May 2025

Employment tribunal backlog up 23% in a year

7 May 2025

Ministers urged to outlaw misuse of NDAs

7 May 2025

Employment Rights Bill must be tightened to protect...

1 May 2025

  • 2025 Employee Communications Report PROMOTED | HR and leadership...Read more
  • The Majority of Employees Have Their Eyes on Their Next Move PROMOTED | A staggering 65%...Read more
  • Prioritising performance management: Strategies for success (webinar) WEBINAR | In today’s fast-paced...Read more
  • Self-Leadership: The Key to Successful Organisations PROMOTED | Eletive is helping businesses...Read more
  • Retaining Female Talent: Four Ways to Reduce Workplace Drop Out PROMOTED | International Women’s Day...Read more

Personnel Today Jobs
 

Search Jobs

PERSONNEL TODAY

About us
Contact us
Browse all HR topics
Email newsletters
Content feeds
Cookies policy
Privacy policy
Terms and conditions

JOBS

Personnel Today Jobs
Post a job
Why advertise with us?

EVENTS & PRODUCTS

The Personnel Today Awards
The RAD Awards
Employee Benefits
Forum for Expatriate Management
OHW+
Whatmedia

ADVERTISING & PR

Advertising opportunities
Features list 2025

  • Facebook
  • Twitter
  • Instagram
  • Linkedin


© 2011 - 2025 DVV Media International Ltd

Personnel Today
  • Home
    • All PT content
  • Email sign-up
  • Topics
    • HR Practice
    • Employee relations
    • Learning & training
    • Pay & benefits
    • Wellbeing
    • Recruitment & retention
    • HR strategy
    • HR Tech
    • The HR profession
    • Global
    • All HR topics
  • Legal
    • Case law
    • Commentary
    • Flexible working
    • Legal timetable
    • Maternity & paternity
    • Shared parental leave
    • Redundancy
    • TUPE
    • Disciplinary and grievances
    • Employer’s guides
  • AWARDS
    • Personnel Today Awards
    • The RAD Awards
  • Jobs
    • Find a job
    • Jobs by email
    • Careers advice
    • Post a job
  • Brightmine
    • Learn more
    • Products
    • Free trial
    • Request a quote
  • Webinars
  • Advertise
  • OHW+