The Employment Appeal Tribunal (EAT) has held in Ferguson and ors v Astrea Asset Management Ltd that contract variations beneficial to an employee and made by the transferor were void as they were made by reason of a TUPE transfer.
Prior to the transfer of an estate management contract from Lancer to a new service provider, Astrea, the claimants, who were directors of Lancer, varied their own contracts to give themselves generous guaranteed bonuses and termination payments. When Astrea discovered this shortly before the transfer, it refused to allow some of the claimants to transfer and dismissed the others for gross misconduct. The claimants brought claims against Astrea based on TUPE for unfair dismissal and contractual termination payments.
At first instance the Employment Judge (EJ) found that these changes were made "by reason of" the anticipated transfer and had no legitimate commercial purpose for Lancer but were designed to compensate the claimants for the loss of Lancer's business, dishonestly taking undue advantage of TUPE by awarding themselves remuneration knowing it would be paid at the expense of Astrea. As such they were void. The claimants were found to have been unfairly dismissed, and one of them was subjected to a 100% Polkey deduction on his unfair dismissal award.
The EAT agreed with the EJ that, although the changes were beneficial to the claimants, they were void because they had been made by reason of the TUPE transfer. The claimant who was complicit in making the variations was subjected to a 100% Polkey deduction as his conduct was sufficient to justify dismissal. The EAT held that the automatic unfairness of the dismissal because of TUPE did not preclude a finding of contributory fault.
Take note: The decision in Ferguson shows that, just because changes to a contract are positive, it does not mean that they will not be found to be void.