In Ponticelli Ltd v Gallagher, the EAT held that an employee’s right to participate in a share incentive plan (SIP), which was not mentioned in the employee’s contract of employment, still transferred under TUPE, meaning that he was entitled to participate in a plan of substantial equivalence after the TUPE transfer.
The Law
The Transfer of Undertakings (Protection of Employment) Regulations - often shortened to ‘TUPE’ – protects employees if the business in which they are employed changes hands. Where there is a transfer of employment under the TUPE Regulations, employees ordinarily transfer on their existing terms and conditions of employment and any changes to terms and conditions will be void.
What Happened?
Mr Gallagher opted into a share incentive plan (SIP) with his original employer. His employment transferred to Ponticelli in May 2022. As it was a voluntary arrangement, his contract of employment did not mention the SIP; the terms of that arrangement were contained in a separate agreement. When his employment was transferred, his shares left the SIP and were transferred to him. Ponticelli offered a one-off sum as compensation for losing the right to participate in a SIP.
The EAT refused the appeal and ruled that the SIP was part of the employee’s overall financial package as an employee. Even though it was non-contractual, it clearly arose ‘in connection with’ the employee’s contract of employment and therefore transferred under TUPE. The new employer was therefore required to put in place a SIP that was substantially equivalent to the old scheme.
What Can We Learn From This Case?
This case confirms that employers will not be able to avoid the transfer of employee rights under shares schemes by simply keeping share scheme documentation separate from a contract of employment. It is, therefore, a useful reminder for companies to conduct thorough due diligence regarding the terms of employees’ contracts and any rights connected to their employment when considering a prospective purchase. If you require assistance with your employee contracts, contact our Employment Law solicitors today.
