TUPE and Negligent Misrepresentation
Hagen v ICI Chemicals and Polymers Ltd (2002) highlights the need for employers to ensure that all communications to employees about their employment and pension benefits are accurate.
This case was brought after the transfer of a business and its employees from ICI to RES. The claimants were employed by ICI for specialist engineering work and in 1994 the engineering department in which they worked was transferred to RES. RES agreed to continue the employees’ contracts on the same terms and to provide a pension scheme roughly comparable with the ICI scheme. However, the employees were reluctant to accept the prospect of the engineering department being transferred to RES.
The employees claimed that ICI had misrepresented the employment conditions, job security and pension rights they would have with RES. They further claimed that they would have opposed the transfer had they been given the correct information.
Mr Justice Elias held that had an individual employee been acting alone, he or she could not have resisted the transfer and remained with ICI. However, he found that the employees had collectively relied on the representations made by ICI and that had they not been satisfied about the terms under which they would be employed they would have resisted the transfer and that this collective opposition would probably have been sufficient to prevent the transaction from going ahead.
He found that the employees had not successfully made out their claims relating to statements about job security and general terms and conditions, but he did find that ICI had honestly but negligently misstated the pension benefits that RES would provide.
ICI had told employees their pension benefits in the new RES scheme would be broadly similar to the ICI scheme benefits and would be within half a per cent of those provided under the ICI scheme. In fact the pension benefits provided by the RES scheme turned out to be up to 5% less generous than those provided by ICI.
Further pensions information was later given to the employees and ICI argued that they had had the opportunity to take advice from either RES or independent pensions experts on the differences between the benefits.
The employees also alleged that ICI’s conduct in making the representations constituted a breach of the duty not to undermine trust and confidence, the duty to act fairly and in good faith and the duty to take all reasonable steps to ensure that the employees were made aware of the true position with regard to their pension rights and to all other benefits and entitlements under their contracts.
The court rejected the claim that there was an implied duty on ICI to take reasonable steps to keep employees informed of their benefits and pension rights. Elias J considered that no such duty arose under previous case law or the general obligation of trust and confidence owed by an employer but, that if employers did choose to give information, they should ensure it was correct to avoid the risk of a claim.
It was held that this did not negate the misleading impression given by the half a per cent statement as once a false impression had been created it was up to the maker of that statement to correct it.
Therefore, on the facts, ICI had negligently misrepresented the position to the claimants in respect of the pension benefits they could expect to receive when their employment transferred to RES, thereby breaching their duty of care. The employees had reasonably relied on ICI’s misrepresentation regarding pension rights in deciding to agree to the transfer and were, therefore, entitled to damages for any consequent loss.
It was accordingly held that each employee affected should receive damages from ICI ensuring that they were not more than 2% worse off in the RES scheme than they would have been had they remained members of the ICI scheme. The court accepted evidence from actuarial experts that this was the test they would apply in assessing whether benefits were "broadly comparable."
This case turned, not on the terms of a formal agreement, but on the interpretation of written and oral announcements made to members. Elias J followed expert actuarial advice in reaching the conclusion that a 2% reduction in actuarial value was the appropriate test in this case, however, it would be open to other judges and actuaries to reach different conclusions, even in similar circumstances.
TUPE
ICI had access to information which the employees did not, in particular, knowledge as to future plans, and they also had a material interest in the transfer going ahead. Accordingly, it was just, fair and reasonable to impose a common law duty of care in making statements to employees in a "transfer situation" notwithstanding the statutory duty on an employer to inform and consult about a transfer under TUPE.
The High Court confirmed that TUPE would not transfer liability to a purchaser in relation to statements made by a seller about pension benefits as the transfer provisions in TUPE, pursuant to regulation 7, exclude liabilities arising "under or in connection with" occupational pension schemes.
The High Court held that employers had a duty to take reasonable care in making statements, particularly where:
- the employer was proposing that the employees transfer their employment;
- the transfer would impact upon the future economic interests of employees;
- the transfer would be unlikely to take place if a significant body of the employees objected;
- the employer had access to certain information unavailable to the employees; and
- the employer knew that its information or advice would carry significant weight with the employees.
It is important that employers take care with pensions communications, as this case shows how easily employees can misunderstand oral briefings. Employers would be advised to provide clear written materials and to keep records of what has been said at presentations.
Sellers should ask purchasers to give details of pensions proposals so they can be passed on to employees and purchasers should look for confirmation from sellers that the information given out is accurate.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
