In the recent case of Ponticelli UK Ltd v Gallagher [2023], the Inner House of the Court of Session (Scotland’s equivalent of the Court of Appeal) ruled that an employee’s right to participate in a share incentive (“SIP”) plan arose “in connection with” their contract of employment for the purposes of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”). This meant that the right transferred under TUPE, and the new employer was obliged to provide a substantially equivalent alternative SIP.
Mr Gallagher’s employment transferred to Ponticelli UK Ltd (“Ponticelli”) under a TUPE transfer in May 2020. In his employment with the previous employer, he had been a member of a SIP. Ponticelli refused to provide an equivalent scheme when Mr Gallagher’s employment transferred. He brought a Tribunal claim, arguing that his right to participate in an equivalent SIP had transferred to Ponticelli as part of the TUPE transfer.
Although Mr Gallagher’s membership of the SIP was not included within, and therefore did not arise “under”, his contract of employment, it did arise “in connection with” his employment contract because he was only able to join the scheme by virtue of being an employee. His subscriptions to the SIP were deducted from his salary and formed part of his overall package of financial benefits. It was therefore caught by TUPE, and Ponticelli was obliged to provide Mr Gallagher with a substantially equivalent alternative SIP.
Paula Bailey comments:
This decision is important for employers, as it illustrates how benefits which are not included within an employment contract but which arise “in connection with” an individual’s employment can be caught by TUPE. Employers should carry out comprehensive due diligence prior to a TUPE transfer, to ensure that they are aware of any benefits outside of the employment contract which may transfer under TUPE and can address and agree these issues upfront. This ruling gives rise to a tricky practical issue, since it may be difficult for the new employer to replicate this benefit in practice.
If you have any questions on this case or require any advice on TUPE transfers, please contact a member of the team here.
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