MHA | Ponticelli Ltd v Gallagher - Employment Law Case

Ponticelli Ltd v Gallagher - Employment Law Case

Joanna Rose · Posted on: October 20th 2023 · read

In Ponticelli Ltd v Gallagher, the Court of Session in Scotland (equivalent to the Court of Appeal in England and Wales) found that a share incentive plan would have transferred in a TUPE situation, despite it not being set out in the Contract of Employment.

Mr Gallagher participated in his employer’s all-employee Share Incentive Plan via a contractual agreement with his employer and the plan’s trustees. His employment was transferred to Ponticelli under TUPE; Ponticelli stated they did not offer a Share Incentive Plan and offered Mr Gallagher a one-off payment as compensation. Mr Gallagher argued that the right to participate in the Share Incentive Plan should have transferred under TUPE and that Ponticelli should therefore provide an equivalent scheme. Ponticelli then claimed that the Share Incentive Plan was not a contractual entitlement and therefore would not transfer under TUPE.

The Court of Session found that as Mr Gallagher would be financially disadvantaged by non-transfer of the employee share plan, this meant that it was a part of his terms and conditions even though it was not set out in the Contract of Employment. It found that the share plan arose “in connection with” Mr Gallagher’s Contract of Employment. The right to participate in it therefore did transfer bringing the share plan within the TUPE transfer and so Ponticelli was required to offer an equivalent alternative.

Employers have generally sought to ensure employee share schemes are kept separate from employees’ contracts of employment via wording used in the share plan rules and documentation. This court case has decided that notwithstanding this, the right to participate in an employee share plan is connected to an employee’s contract and so is within the protection of the TUPE rules on transfers of businesses. As it stands therefore, when one company acquires another company or its business, the acquiring employer will now need to consider what rights to participate in share plans employees in the transferring company or business have and how these are to be replicated for transferring employees once the business has been acquired. It is not enough simply to say the company or business making the acquisition does not have an employee share plan (that was an argument advanced by Ponticelli). The acquiring business will have to offer some kind of employee share plan to the transferring employees even if it doesn’t currently have one.

The case was a Court of Session judgment; however, as TUPE equally applies in England and Wales, the EAT will most likely follow the decision.

HR Solutions can undertake HR Due Diligence to highlight any areas where terms not set out in the Contract of Employment may transfer, thus giving the prospective transferee the option to consider if it wants to proceed with the business acquisition or taking over of a contract, and to determine how it can provide these terms if it does.

HR Solutions can also advise on a TUPE transfer process including the obligations to consult and can provide all the relevant documentation required.

If you are considering acquiring a business and that business has an employee share plan or plans in place in which employees are entitled to participate, our tax colleagues in our Human Capital Advisory team can help you identify what share plan rights the employees have in the company you are looking to acquire, determine the quantum of what they will be losing as a result of the transfer, and advise you on what to do to replicate what they will be losing including, if need be, setting up an employee share plan as cost efficiently as possible.

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This insight was previously published in our HR Solutions October 2023 newsletter

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