Share incentive plans and TUPE 


Share

The Employment Appeal Tribunal (EAT) has held in Ponticelli UK Ltd v Gallagher that the right to participate in a share incentive plan (SIP) under a collateral contract transferred under TUPE.

The claimant's employment transferred from Total Exploration and Production UK Ltd (Total Exploitation) to Ponticelli UK Ltd (Ponticelli) under TUPE.  Prior to the transfer he participated in a SIP operated by Total Exploration. Employees with at least three months' service and who were resident in the UK for tax purposes were eligible to join and acquire shares in Total Exploration's parent company, in a tax efficient way. Participation in the SIP was not mentioned in the claimant's contract of employment. When his employment transferred to Ponticelli it advised him that, as compensation for the fact that it was not going to provide him with a SIP post-transfer, he would receive a one-off payment of £1,855 (twice his average contributions to the Total Exploration SIP over the preceding two years).

The claimant applied to the tribunal for a determination under section 12 of the Employment Rights Act 1996 that he was entitled to be a member of a SIP equivalent to the Total Exploration plan, and this right had transferred under TUPE. The tribunal agreed holding that he was entitled to participate in a SIP of substantial equivalence or comparable value to the SIP operated by Total Exploration.

Ponticelli appealed arguing that TUPE did not apply because, although rights and obligations arose when the claimant joined the SIP, those rights and obligations did not arise either "under" the contract of employment or "in connection with" it. Regulation 4(2)(a) of TUPE provides that where there is a relevant transfer all of the transferor's "rights, powers, duties and liabilities under or in connection with" a transferring employee's contract pass to the transferee.

On appeal the EAT held that the claimant's rights under a collateral contract to participate in his employer's SIP did arise "in connection with" his contract of employment" for the purposes of TUPE. The SIP was directly connected to the financial package of benefits that the claimant received as remuneration for his services as an employee and involved the provision of matching shares paid for entirely by the employer. As a result he was entitled to participate in a plan of substantial equivalence following his TUPE transfer to a new employer.

Take note: Following the decision in Gallagher transferees will need to be aware that the right to participate in a SIP will be a right "in connection" with an employee's contract and so there will be a duty to provide a share scheme of substantial equivalence. Generally though share schemes are kept separate from employees' contracts of employment, with scheme rules often expressly stating that they are not contractual and that participation in a share scheme will be specifically excluded from the employment contract.

Insight

Webinar: Trowers Tuesday – Review of 2022

Explore
Insight

HR Law – December 2022

Explore
Insight

Webinar: Solutions to current issues in the cost of living crisis

Explore
Insight

Thinking Business - Issue 12

Explore
Insight

Regulations made extending ban on exclusivity clauses in employment contracts to low-income workers

Explore
Insight

TUC calls for the introduction of mandatory disability reporting

Explore