Share Incentive Plan (SIP) rights transfer under TUPE

Although TUPE dates back to 1981, businesses still grapple with the transfer of rights and liabilities in the context of a TUPE transfer. The recent decision in Ponticelli highlights unexpected consequences for transferees when dealing with Share Incentive Plans (SIP).

TUPE & Non-Contractual Benefits 

TUPE provides that all rights, powers, duties, and liabilities under, or in connection with, an employment contract will automatically transfer to the transferee. The question of whether a Share Incentive Plan (SIP) transfers under TUPE arose in the recent Scottish case of Ponticelli Limited v Gallagher. This case considered whether entitlements under SIPs are rights under or in connection with an employee’s contract of employment such that they transfer to the new employer, even when they are not referenced in the contract of employment.

Facts

The Claimant was employed by Total Exploration and Production UK Limited. During his employment, he joined a SIP, which involved him entering into a separate contract with his employer and the trustees of the SIP. There was no reference to the SIP in the Claimant’s contract of employment. Following the acquisition of his employer by Ponticelli, the Claimant’s membership of the SIP ended and his shares transferred to him. Ponticelli Limited proposed a further one-off payment, as compensation for the fact that they were not going to provide a SIP.  Mr Gallagher argued that he was entitled to be a member of a SIP of equivalent value and that this right had transferred under TUPE.

Decision

The Employment Tribunal (ET) held that he was entitled to participate in a SIP of comparable value to the SIP operated by his former employer. This decision was upheld by the Employment Appeals Tribunal (EAT) and Ponticelli appealed to the Court of Session, relying on the case of Chapman and Elkin -v- CP Computer Group, to argue that benefits available to employees under contractual arrangements that are wholly distinct from the contract of employment do not transfer under TUPE. The Court of Session rejected this argument and upheld the ET and EAT decisions finding that Ponticelli had to provide a SIP of substantial equivalence.

Key takeaways

  • Rights that form an integral part of an employee’s overall financial package will likely fall within the definition of being a right “in connection with” the contract of employment and will be capable of transferring under TUPE.
  • A restrictive interpretation of the TUPE Regulations should be avoided. The purpose of the Acquired Rights Directive is to ensure that the employment contract or employment relationship continues unchanged and that employees are not in a less favorable position because of a transfer.
  • The case authority of Chapman is of limited assistance when considering whether non-contractual rights should transfer under TUPE Regulations. The Chapman case was restricted to considering an alleged breach of contract and not an alleged failure of the transferee company to transfer rights that formed part of the employe’s contract or rights which related to it.

Although this is a decision of the Scottish Court of Session and, strictly speaking, not binding on courts and tribunals in Northern Ireland, it is likely to be followed should similar issues arise in the Northern Ireland jurisdiction. The decision highlights the importance of due diligence and the need to review both contractual and non-contractual entitlements in anticipation of a TUPE transfer.

For more information, please contact Aisling Byrne, Partner, Mollie Thompson, Solicitor or your usual ALG Employment & Incentives contact with any TUPE queries.

Date published: 18 September 2023.