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When there is a TUPE transfer, all of the transferor’s (the original employer) rights, powers, duties and liabilities connected to the transferring employee’s contract of employment transfer to the transferee (the new employer). The EAT has looked recently at whether a share incentive plan (SIP), whose terms are contained in a collateral contract rather than the contract of employment, transfers during a TUPE transfer.

In Ponticelli v Gallagher, the employee was part of a share incentive plan (SIP) with his original employer. His employment then transferred to Ponticelli. The employee’s contract of employment did not mention the SIP, and the terms of the arrangement were contained in a separate agreement. That agreement said that shares must be sold or transferred to the employee or the company’s share account within 90 days of leaving employment. His employment transferred and his shares left the SIP and were transferred to him. Ponticelli offered a one-off sum as compensation for losing the right to participate in a SIP. The employee applied to the tribunal for a determination of his terms and conditions, saying he had the right to participate in a similar SIP with the new employer. 

The employment tribunal said the employee had the contractual right to participate in a SIP as part of his overall financial package. That right transferred and he had the right to participate in a comparable scheme with the new employer. The employer appealed, saying the rights did not arise under the contract of employment or in connection with it, but via some other agreement (which they conceded was contractual). The EAT dismissed the appeal. They said that the right to participate in the SIP had clearly arisen under or in connection with the employee’s contract of employment. The SIP was directly connected to the overall financial package he received in return for his services as an employee. Those rights and obligations transferred to the new employer. He was entitled to participate in an equivalent scheme. 

Share schemes are often kept deliberately separate from contracts of employment and often purport to be non-contractual. This case suggests that the right to participate in a share scheme like a SIP is a right ‘in connection with’ the employment contract and therefore will transfer under TUPE. This is a logistical nightmare for a new employer who does not already operate this kind of scheme. It is vital for businesses to consider the contractual (or otherwise) nature of this kind of scheme during the due diligence process that precedes any TUPE transfer.