Can a share incentive plan transfer under TUPE?

The Legal bit

When there is a relevant transfer for the purposes of the Transfer of Undertaking Protection of Employment Regulations 2006 (TUPE), all of the employees “rights, powers, duties and liabilities under or in connection with” a transferring employee’s employment contract pass to the new employer (regulation 4(2)(a), TUPE).

Background

The Claimant, Mr Gallagher’s employment transferred to the Respondent, Ponticelli UK Limited under a TUPE transfer in May 2020.

Prior to the TUPE transfer, the Claimant was employed by Total Exploration and Production UK Limited (“TEPUK”) and participated in a Share Incentive Plan (”SIP”) operated by TEPUK and known as the Total E&P UK Limited Share Incentive Plan. The plan was established by TEPUK to give eligible employees the chance to acquire shares in TEPUK’s parent company, Total S.A. in a tax efficient way. The plan was not mentioned in the Claimant’s contract of employment. Deductions from the Claimant’s salary were applied in respect of the subscriptions. He was potentially also entitled under the SIP to performance-related awards of Free Shares.

Following the TUPE transfer, the Respondent refused to provide an equivalent scheme when the Claimant’s employment transferred.

The Claimant brought an Employment Tribunal claim alleging that he was entitled to be a member of an equivalent plan. He also asserted that that his right to participate in an equivalent SIP had transferred to the Respondent as part of the TUPE transfer.

The decision

The Employment Tribunal agreed with the Claimant and held that he was only able to participate in the SIP because he was an employee. The Employment Tribunal also held that it was a benefit for employees such as the Claimant and was part of his overall financial ‘package’. Therefore it was ‘caught’ by the wording of regulation 4(2)(a) of TUPE.

The Respondent appealed to the Employment Appeal Tribunal who dismissed the appeal. Whilst his membership of the SIP did not arise ‘under’ the contract of employment, it plainly arose ‘in connection with’ his employment contract. He could only join the SIP because he was an employee, his subscriptions were deducted from his salary and the SIP formed part of his overall package of financial benefits associated with his employment. Therefore, the automatic transfer principle was engaged.

The Respondent appealed the Court of Session, which is the Scottish equivalent of the Court of Appeal.

Court of Session decision

The appeal was dismissed. The court noted that the employment tribunal was correct to find that the SIP formed an integral part of the Claimant’s financial package. Contributions to the SIP were made through salary deductions. For each share purchased by salary deduction, TEPUK contributed two further matching shares. The free shares part of the plan linked the award of further shares to the employer’s bonus scheme. The Claimant would be financially disadvantaged if he were unable to participate in an equivalent scheme with the Respondent.

Comment

Employers usually exclude share schemes as being part of an employment contract and in doing so avoids a transfer pursuant to a TUPE transfer. However, this decision confirms that TUPE can cover share scheme benefits even where the contractual documentation containing the right to participate is separate from the contract of employment.

In practical terms, due diligence needs to be undertaken to determine whether a SIP plan is in place and consider the details and consider the mechanism and details before the transfer takes place.

This is likely to cause significant cost issues for transferring employers including the practicalities of providing a similar share scheme.