Ponticelli UK Limited v A Gallagher

For the purposes of regulation 4(2)(a) of TUPE 2006, obligations need not arise under the employment contract itself. Obligations created by a separate agreement may transfer where they arise in connection with that contract.

An employee's voluntary participation in an employer-only share incentive plan was sufficiently connected with employment where eligibility depended on employee status, salary deductions funded share purchases, and the employer provided matching shares as part of the employee's financial package. On a transfer, the employer's obligations under that agreement transferred and required provision of a scheme of substantive equivalence.

The employee's employment transferred from Total Exploration and Production UK Ltd to Ponticelli UK Ltd on 1 May 2020. Before the transfer, he had entered into a Partnership Share Agreement with his employer and the plan trustees. The agreement enabled salary deductions to buy shares and required the employer to provide matching shares.

The transferee declined to continue the share incentive plan and instead made a one-off payment. The Employment Tribunal held that the employee was entitled to participate in a scheme of substantive equivalence and made a declaration under sections 11 and 12 of the Employment Rights Act 1996. The transferee appealed, principally contending that the obligations under the separate share agreement did not arise under, or in connection with, the employment contract.

1. The appeal was refused save for a limited amendment to the Tribunal's declaration. The Partnership Share Agreement created enforceable mutual obligations: the employee authorised salary deductions, and the employer undertook to purchase shares and provide matching shares.

2. Those obligations plainly arose in connection with the employment contract within regulation 4(2)(a) of TUPE 2006. Eligibility was confined to employees, and the plan was directly connected with remuneration and formed part of the employee's broader financial package. It was immaterial that the obligations did not arise under the employment contract.

3. Chapman v CP Computer Group [1987] IRLR 462 did not prevent that conclusion. The Court of Appeal had not addressed the words “or in connection with” in the predecessor regulation, and its stock-option scheme differed materially from this share incentive plan.

4. As the rights and obligations had not been terminated before the transfer, they transferred to the transferee in the manner envisaged by MITIE Managed Services Ltd v French [2002] ICR 1395. The employee was consequently entitled to a plan of substantive equivalence.

5. Section 1(4)(da) of the Employment Rights Act 1996 applied at the transfer date. The change of employer and the altered form of the entitlement required notification under section 4. The Tribunal's declaration was competent, but it had to refer to the written statement of particulars and the collateral Partnership Share Agreement rather than to employment terms and conditions.

• Employment Appeal Tribunal: Appeal from the Employment Tribunal judgment dated 23 August 2021. The appeal was refused, but paragraph 2 of the Tribunal's judgment was set aside and replaced with a corrected declaration concerning the written statement of particulars.
• Employment Tribunal: Held that, following the transfer, the employee was entitled to participate in a share incentive scheme of substantive equivalence to the transferor's scheme.