TUPE: Contract variations beneficial to an employee in anticipation of a TUPE transfer held to be void - Ferguson and others v Astrea Asset Management Ltd 2020

The transferring employees amended their own contracts to include substantial benefits before the TUPE transfer. The Employment Appeals Tribunal (‘EAT’) held that, despite the variations being beneficial to the employees, they were void as they were made by reason of the transfer.

Shortly before the TUPE transfer, the Claimants varied their own employment contracts to provide for guaranteed bonus payments worth 50% of their salary and generous new termination payments. Following the transfer, the transferee dismissed them for gross misconduct. The Claimants subsequently brought proceedings in the Employment Tribunal (‘ET’) which included claims for the termination payments that they had provided for when varying their contract.

The ET held that the contract variations were void under Regulation 4 of the TUPE regulations which provides that any purported variation of a contract of employment is void if the sole or principal reason for the variation is the transfer. An exception to this is if the variation was for an economic, technical or organisational reason entailing changes in the workforce.

The Claimants appealed on four grounds one of which was that regulation 4 only applied to variations that were adverse to the employee, therefore, these variations were enforceable.

The EAT upheld the ET’s decision, holding that the words ‘purported variation’ under regulation 4 should be interpreted to cover all types of variation, not just those adverse to the employee.

The rationale behind this decision was that this interpretation is consistent with the purpose of the underlying EU Directive which is to safeguard employee’s rights, not to improve them, it was not contrary to any European or English authority and avoids difficult questions on whether a purported variation is or is not adverse. Furthermore, this interpretation reduces injustice to the transferee employer as in this case, is consistent with other provisions within the TUPE regulations and is entirely consistent with the literal words used by the legislator.

The EAT further recognised that if they had misinterpreted regulation 4 and the variations were enforceable, the EU abuse of law principle, which provides that EU law cannot be relied upon for abusive or fraudulent ends, would apply making the variations void.

The EAT’s interpretation of regulation 4 to include any contractual change, not just those adverse to employees, protects transferees and provides useful clarity. It also acts as a note of caution for employees who agree improved terms with the transferor prior to the transfer. We would advise you seek legal advice before varying any contracts of employment, either before or after the transfer, as doing so may subsequently be void, if the sole or principal reason is the transfer.