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", t