Covid-19 is likely to cause an economic downturn. History has shown us that this usually leads to contract uncertainty as property owners and asset managers reassess the service contracts they have in order to reduce costs.

Rolleen McDonnell

Rolleen McDonnell

It is often the case that, where a business is sold or where the services it provides are outsourced or go to a new provider, some employees of the outgoing contract provider transfer over to the new service provider. On these occasions, legislation known as transfer of undertakings (protection of employment) (TUPE) transfers the employment of these employees.

When TUPE applies, it will preserve the terms of employment of those who transfer. TUPE also makes any changes to terms of employment because of a transfer void. This is traditionally seen as a protective measure that prevents detrimental changes being made to employees’ terms of employment.

However, as the recent Employment Appeal Tribunal judgment in Ferguson and Others vs Astrea Asset Management shows, directors of a business subject to a TUPE transfer should not rely on TUPE to enhance contractual terms.

In this case, the directors awarded themselves substantial guaranteed bonuses and termination payments shortly before a TUPE transfer. The Employment Appeal Tribunal found that the changes were void because they were made specifically in connection with a TUPE transfer. It also reasoned that because the directors had been “acting dishonestly” in enhancing their terms, relying on them would be an abuse of law.

In a situation where a service-provider business is being sold to another, a buyer will usually require the seller to agree not to change employees’ terms and conditions during a specified window before the transfer, without first gaining the buyer’s consent.

There may well be legitimate reasons to change an employment contract in the face of a TUPE transfer, such as offering reluctant key staff sale incentives or job security to remain with the business. However, the best means of offering enforceable incentives to such staff is through bonuses or salary uplifts that are paid ahead of a transfer.

Rolleen McDonnell is a specialist employment lawyer at BDBF