TUPE: Transfer of rights under share plans

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TUPE: Transfer of rights under share plans

Published 14 octubre 2022

The EAT has held that an employee’s rights to participate in a share incentive plan, which were contained in a collateral contract, transferred under TUPE and he was entitled to participate in a plan of substantial equivalence after the TUPE transfer. 

 THE FACTS

Mr Gallagher was employed by Total Exploration and Production UK Ltd.  He participated in a share incentive plan (or “SIP”) operated by Total Exploration under which he could buy partnership shares and matching shares by contributing a percentage of his monthly salary via salary sacrifice.  He joined the SIP by entering into a Partnership Share Agreement with Total Exploration and the SIP trustees. The explanatory booklet about the SIP provided that: “If the business or part of the business, or subsidiary company in which you are employed is sold, then your shares must be sold or transferred to you or into [Total Exploration’s] vested share account within 90 days from the date of cessation of your employment.”  Various terms of the plan stated that the plan was not part of any employment contract. 

Neither was Mr Gallagher’s participation in the SIP mentioned in his contract of employment. 

Mr Gallagher’s employment transferred under TUPE to Ponticelli UK Ltd and his participation in the SIP ended.  The shares held on his behalf in the SIP were transferred to him and Ponticelli told him that he would receive a one off payment of £1,855 to compensate for the fact that Ponticelli was not going to provide a SIP. 

Mr Gallagher claimed in the employment tribunal that, after his transfer to Ponticelli, he was entitled to participate in a SIP which was equivalent to the Total Exploration SIP.  The employment tribunal upheld his claim, and Ponticelli appealed to the EAT.  The EAT dismissed the appeal. 

Key to the employment tribunal and EAT decisions were the following points:

  • Under TUPE, all of the transferor’s rights, powers, duties and liabilities under or in connection with a transferring employee’s employment contract transfer to the transferee.
  • Existing case law shows that, where an entitlement to participate in a share scheme arises under or in connection with the contract of employment, the employees will after a TUPE transfer be entitled to participate in a scheme of “substantial equivalence”.
  • In this case, the Mr Gallagher had entered into the Partnership Share Agreement, which was a contract containing rights and obligations in relation to the SIP.
  • Mr Gallagher agreed to deductions being made from his monthly salary and Total Exploration agreed to use the deductions to purchase shares for him. The SIP was part of his financial package.
  • Mr Gallagher was only eligible for the SIP because he was an employee of Total Exploration.
  • Accordingly, while the obligations under the Partnership Agreement did not arise “under” the contract of employment, they plainly rose “in connection” with the contract of employment.
  • Total Exploration’s obligations under the SIP therefore transferred under TUPE to Ponticelli.
  • Mr Gallagher was entitled to participate in a plan of substantial equivalence following his transfer to Ponticelli.

WHAT DOES THIS MEAN FOR EMPLOYERS?

This case shows that employers will not be able to avoid the transfer of employee’s rights under share schemes by keeping the share schemes separate from employment contracts, as the right to participate in a share scheme will be a right “in connection” with the employee’s contract.  This can have significant practical as well as financial implications for employers.

It is possible, however, that where the contract governing the share scheme specifies that the employer has the right to terminate share scheme participation, this existing contractual flexibility will allow for termination of the employee’s participation in the scheme in the context of a TUPE transfer.  This possibility was not tested in this case.

Ponticelli UK Limited v Mr A Gallagher

Authors

Zoë Wigan

Zoë Wigan

London - Walbrook

+44 (0)20 7894 6564

Ceri Fuller

Ceri Fuller

London - Walbrook

+44 (0)20 7894 6583

Hilary Larter

Hilary Larter

Leeds

+44 (0)113 251 4710

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