The effect of a contract variation that breaches TUPE

A contract variation that breaches TUPE is void, even if employees have agreed to the change. European law does not allow individual employees to give up their statutory rights under the Acquired Rights Directive. This means that an employee cannot agree to any changes to their contract terms in breach of the Directive (Wilson v St Helens Borough Council [1998] IRLR 706). It makes no difference if the employer pays for the variation, for example giving a pay rise in return for giving up annual leave rights. If the variation breaches TUPE, it is void.

This basic position is complicated by the case of Power v Regent Services Limited [2007] UKEAT/499/06. This case established that an employee (but not an employer) can elect to enforce a change to a contract term made in breach of TUPE, where that change (in the employee’s subjective opinion) benefits him or her. Because the test is subjective, the same change can be viewed as beneficial (and therefore enforceable) by some employees, but detrimental (and therefore void) by others.

In Power, Mr Power’s original contract of employment contained a contractual retirement age of 60. After a TUPE transfer, his new employer raised the contractual retirement age to 65 (a void change based on the rule in Wilson v St Helens). Then when Mr Power reached 60, his employer tried to forcibly retire him, arguing that the contractual retirement age was still 60 because the change of the retirement age to 65 was void as a breach of TUPE. The tribunal disagreed, finding against the employer. The tribunal said that Mr Power could choose between enforcing the contractual retirement age of 60 and 65.

Employers are sometimes tempted to offer incentives or inducements to employees to change contract terms on a transfer, but the Power case creates the prospect of employees being able to pick and choose from a basket of changes offered, insisting on keeping the benefit of any inducement offered, while simultaneously treating as void any “detrimental” change to terms, even if it is has been agreed.

The Power case remains a powerful deterrent to harmonisation of individual contract terms. The employer is not allowed to argue that changes to individual contract terms should be read “as a whole”, and that the overall “value” of the package of terms is not changed by the variation.

The 2014 BIS TUPE guidance suggests that changes that are “entirely positive from the employee’s perspective” are not prevented by TUPE, since the underlying purpose of the Directive is to ensure that employees are not penalised. TUPE certainly does not stop employers agreeing new, better terms with employees after a transfer, whether individually or through a collective agreement.