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The Employment Appeal Tribunal has held in the case of Ponticelli UK Limited v Gallagher that a Share Incentive Plan (SIP) which was separate to the contract of employment is a transferable benefit under a TUPE transfer.
The SIP was deemed as an employment benefit arising “under or in connection with a contract of employment” meeting the criteria set out in Regulation 4(2)(a) of the TUPE regs. In this case, Mr Gallagher was a member of a share incentive plan with his employer. It was a voluntary scheme and no reference was made to it in his contract of employment. Mr Gallagher’s employment transferred to Ponticelli under TUPE. Ponticelli did not offer a comparable scheme and so offered a lump sum as compensation for the loss of the benefit.
Mr Gallagher asked the ET for a determination on whether the SIP was a transferable benefit under TUPE. It was held that the share scheme was a transferable benefit and that Ponticelli should provide an equivalent scheme. Ponticelli appealed but the EAT upheld the ET’s decision on the basis that although the share scheme was not part of his employment, it did arise “in connection with” it.
This is an important decision affecting employers who are tendering for contracts involving a service provision change or who are currently in a TUPE process. The decision in the Ponticelli case is a binding decision and will include employment benefits which are separate to the contract of employment. The impact on any company taking on staff in these circumstances is that they are obliged to seek to provide a comparable or equivalent scheme similar to the duties regarding pension schemes. The obvious practical difficulties are that not all companies will be listed or be in a position to offer a share incentive plan. The judgment in Ponticelli did not address this nor give any guidance to those employers who receive employees in with benefits where they cannot provide an equivalent alternative.
The take aways from this decision are to explore carefully during due diligence processes the full range of benefits being provided to employees even those offered on a voluntary and non-contractual basis. If necessary, costings may need to be adjusted to provide alternatives or to allow for compensation to be paid to transferring employees for the loss of benefits which cannot be replicated.