The question
I am currently working on a TUPE project and need some help on issues relating to terms and conditions of employment.
Under TUPE law, I understand that an employee transfers under the terms and conditions of their employment. But my question is how do you determine what is contractual or not if, for example, all benefits are not listed in the principal statement of terms and conditions, but as a reference as made as below?
Other terms and conditions of employment: "Those not specifically mentioned in the above (meaning Ts&Cs) are covered by the employee handbook, a copy of which is available to all employees on the intranet, which is updated from time to time."
The benefits listed in the employee handbook/intranet include things such as gym membership, season ticket loans, holiday top-up schemes, long service awards, eye care vouchers, childcare vouchers and the like.
So my question is, are all of these contractual benefits included because the principal statement has made reference to them in the actual document? If this is the case and the receiving company cannot afford to continue with these benefits because they are much smaller, what can be done to resolve the situation?
If the company is proposing a buy-out scheme for some of these benefits, is there a particular formula for calculating what has been offered as an incentive?
The legal verdict
Esther Smith, partner at Thomas Eggar
Under TUPE, all “rights, powers, duties and liabilities under or in connection with” the contract of employment will transfer to the new employer. So it is not just the contract of employment itself that transfers, but also duties and liabilities connected with it.
This would include any rights, duties and liabilities found in the employee handbook, to the extent that they are incorporated into employees’ contracts of employment.
It appears from the wording of your question that the additional benefits set out in the employee handbook are incorporated into the contract of employment, given that they are expressly referred to in the principal statement of terms and conditions.
However, there may be other wording in the contract and/or the handbook itself, which specifies that the benefits are not contractual, and so it is worth checking for this. Assuming that the employee handbook benefits do transfer, you then have the issue of whether the new employer will be able to provide them.
Given that TUPE applies as a matter of law (which means that it is not possible to contract out of these rights), if the benefits are found to be contractual, the employees would have a strong basis on which to claim breach of contract, and even constructive dismissal, if they are not provided after the transfer.
It would also be difficult to rely on a buy-out of the benefits because, even if personnel were to agree to it, they could still try to enforce their pre-existing terms containing those benefits at a later date.
From a practical perspective, if it is simply impossible for the new employer to provide these benefits, it may have no other option than to offer a buy-out in return for their removal (there is no particular formula for calculating this).
But to reduce the risk of employees seeking to rely on their handbook benefits, their new employer should make it clear that by accepting the buy-out, they are giving up their right to the benefits laid out in the handbook.
This approach would not completely remove the risk as staff could reject the buy-out and/or still try to rely on their pre-existing benefits, but if the sum were significant, they would be less likely to challenge it.
Esther Smith is a partner in Thomas Eggar‘s Employment Law Unit.
Adam Partington, a solicitor at Speechly Bircham
The terms of an employment contract can be expressly stated in that contract, implied into it, for example, through custom and practice, or incorporated into it by reference to other documents such as a handbook.
But it is important to understand exactly how these documents are worded and how the provision of benefits listed in the handbook operate in practice in order to understand whether or not they are contractual entitlements. Based on the information that you have provided, it appears that they could well be contractual.
When company A buys company B, assuming that the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) apply, the staff employed by company B will transfer to company A with, among other things, their contractual terms and conditions intact (with certain exceptions).
This means that, in your scenario, if the benefits referred to in the handbook are contractual and TUPE applies, the transferring employees’ terms and conditions will move from their existing employer to their new one.
Under TUPE, if the new employer tries to change the terms and conditions of the transferring employees, the changes will be void unless the sole or principal reason for the change is either:
- A reason unconnected with the transfer
- A reason connected with the transfer that is “economic, technical or organisational” and entails changes in the workforce.
Whether these criteria apply can be difficult to determine, however. For example, alterations to an employee’s remuneration package may not be considered to be connected with the transfer (and, therefore, permissible) if such alterations coincide with the job being changed substantially.
Buy-out schemes
However, if changes to the job take place that are connected to the transfer, an ETO reason such as a change in workforce numbers would be required to make them permissable.
Based on the information that you have provided, it is not possible to say whether the changes you are proposing fall into which of the above categories (and are, therefore, permissible).
An additional pitfall, however, is that proposed or actual changes to employees’ terms and conditions could give rise to potential constructive dismissal claims. This risk is also compounded if the changes are related to the transfer and are to the material detriment of the staff concerned.
But there are a number of options available to you should you wish to try and progress with these changes – although it is worth bearing in mind that removing the transferring employees’ benefits will involve some risk, even if the company is proposing to introduce a buy-out scheme in order to compensate them for their lost benefits.
There is no specific formula for calculating what such a buy-out payment should be, but clearly it will need to be sufficient if staff are to agree to the new terms and conditions.
Even if they agree to the changes, however, there remains a risk that such changes could be impermissible under TUPE and that employees could subsequently claim a right to the preferential terms.
The fact that the transferee company is small and cannot afford the preferential terms is unlikely, of itself, to provide you with any justification to change them. As a result, you should seek further legal advice before taking any steps.
Adam Partington is a solicitor at Speechly Bircham LLP.
