UK: TUPE Applies to Early Retirement Pensions on Dismissal

Last Updated: 6 September 2002

The ECJ recently held in Beckmann v Dynamco that employees’ rights to early retirement pensions on dismissal will survive a business transfer to which the Transfer of Undertakings (Protection of Employment) Regulations 1981 applies. Although the scope of the case, particularly in the private sector, remains subject to debate, (and may only be clarified by a further judicial determination), it is clear that the purchaser of a business could now be liable to provide early retirement benefits equivalent to those provided under the seller’s scheme as if the business transfer never occurred.

Where a business is sold and the Transfer of Undertakings Regulations (the TUPE Regulations) apply, the terms and conditions of employment of the transferring employees are transferred automatically to the purchaser. The TUPE Regulations, however, exclude "old-age, invalidity or survivors’" benefits under an occupational pension scheme from being automatically transferred, and it has always been assumed that this exemption covered all pension benefits under an occupational pension scheme.

In the Beckmann case, the ECJ considered whether early retirement pensions payable on redundancy constituted "old-age benefits" under the NHS Superannuation Scheme. Under a collective agreement for employees working within the NHS, employees over 50 with five years’ NHS service who were dismissed for redundancy were entitled (together with other compensation) to immediate payment of an enhanced early retirement pension. Mrs Beckmann had worked within the NHS and had contributed to the NHS Superannuation Scheme until the body for which she worked was transferred, as part of a TUPE transfer, to Dynamco. She was later dismissed by Dynamco for redundancy. On her redundancy Dynamco paid her the lump sum compensation calculated in accordance with the collective agreement, but no early retirement pension was paid. Mrs Beckmann brought legal proceedings seeking a declaration that she was entitled to those benefits and an order that Dynamco pay them. The ECJ held that only those benefits at the end of an employees’ normal working life as laid down by the general structure of the pension scheme in question constituted old-age benefits.

The ECJ stated that "early retirement benefits and benefits intended to enhance the conditions of such retirement, paid in the event of dismissal to employees who have reached a certain age… are not old-age, invalidity or survivors’ benefits".

A potential liability therefore now arises where employees are entitled to an early retirement pension on dismissal under the seller’s pension scheme and those benefits are not replicated in a purchaser’s scheme following a TUPE transfer. The potential liability to the purchaser where there are Beckmann liabilities is likely to amount to the cost of topping up benefits to the amount that the transferring employee would have received had he remained a member of the seller’s scheme to the date of dismissal, and this will have different implications, depending on the type of benefits the purchaser is providing, and whether there has been a transfer of members’ past service rights.

It should also be noted that the Beckmann judgment has retrospective effect, so that claims may be brought by employees even though the transfer took place before the date of the ECJ judgment. In the context of a redundancy benefit, an employee could have up to six years following a redundancy by the new employer to bring a claim.

Comment

It is clear from the Beckmann case that benefits on redundancy will now transfer (effectively as a contractual right) under the TUPE Regulations. However, the extent of the judgment, and whether it applies to all early retirement benefits (other than incapacity pensions and survivors’ benefits, which are specifically excluded under the TUPE Regulations), and not just those on redundancy, turns on the question of what is meant by the references in the ECJ judgment to "dismissal" and the "end of an employees’ normal working life". If other early retirement benefits do transfer, it is not clear on what terms they will do so, for example, whether they will be subject to any consent requirements or amendment provisions set out in the rules of the transferring scheme.

Those involved in the purchase of a business need to be aware of this potential new liability, and should take advice, particularly where there is a transfer from the public sector, or where it is not intended to replicate existing benefits. Even where a purchaser is acquiring a company (rather than a business), it will need to ensure that it is aware of any Beckmann type liabilities that may already exist from any previous TUPE transfer of the relevant employees.

Given that Beckmann liabilities can also apply retrospectively, companies who have previously purchased businesses and are not providing mirror image pension benefits could now be facing unanticipated pension liabilities. The risk will be highest where the business was purchased from the public sector and/or where transferring employees were entitled to enhanced payments on redundancy under the seller’s scheme. Where a large number of redundancies occurred after the transfer, or are planned, it would be sensible to check the terms of the sale agreement to try to ascertain where any Beckmann liability falls.

It is also important for a seller of a business to ensure that they are happy with where any future Beckmann liabilities may fall under the agreement setting out the terms of the sale.

© Herbert Smith 2002

The content of this article does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.

For more information on this or other Herbert Smith publications, please email us.

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