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TUPE Transfers – Early Retirement and Redundancy Rights

The Pensions Ombudsman sheds a bit more light on the position under TUPE in relation to enhanced benefits subject to employer discretion. We explore the case and the background.

A recent determination by the Pensions Ombudsman confirms that redundancy benefits can transfer under TUPE even when related to an enhanced pension.  However, if the benefit is subject to employer discretion, that same discretion also transfers.  As such, a new employer may consider whether or not to exercise the discretion to the employee's benefit, even if it has always been the previous employer's policy to do so.

Background TUPE – What Rights Transfer?

Under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”), 'old age, invalidity or survivors' benefits in respect of an occupational pension scheme do not transfer when an employee is subject to a compulsory transfer from one employer to another. However, this should not be regarded as an absolute exclusion applicable to all pension rights because exclusions of this type are, by their nature, intended to be limited in application.

In the Beckmann case[1], the European Court of Justice (ECJ), as it was, held that pension benefits triggered by redundancy did transfer. Only benefits payable from when an employee reaches the end of his normal working life, as provided for by the scheme rules in question, are to be regarded as "old age benefits". Accordingly, redundancy benefits may transfer.

In the case of Martin[2], it was further held by the ECJ that early retirement benefits may also transfer under TUPE, where such rights are contingent upon early retirement by agreement with the employer. Both cases relate to rights originating with public sector schemes: the NHS and Teachers' pension schemes respectively. These often contain provisions involving entitlement to additional pension on the occurrence of employment-related events.  

The High Court developed the position further in the Procter & Gamble case[3]. This clarified that TUPE is not confined in its operation to express contractual liabilities. It can also extend to ‘rights and obligations’ arising from the employment relationship. As such, the right to be considered for a discretionary benefit, albeit one subject to an employer's consent, can also transfer under TUPE.

Background – Expectation & Entitlement

The legitimacy of members' expectations is an important issue, in deciding whether or not they may enforce those expectations. Particularly, where their expectation is that a discretion will be exercised in their favour. In the IBMcase[4], the High Court has distinguished certain forms of expectation.

If an employer has represented its current intention only, a policy change may only be challenged on the grounds that, contrary to reasonable expectations, such a decision was either irrational or perverse. If so, an employer may have to reconsider its decision. However, only specific promises, commitments or guarantees from an employer are likely to be enforceable.

The Courts have explained that a mere expectation, though relied on with full certainty, will not constitute a legal right.[5] In other words, a mere expectation may be perfectly reasonably held by an employee but that will not turn it into a reasonable expectation, in the sense that it may be legally enforced. An expectation is more likely to be regarded as reasonable or enforceable if engendered by an employer, rather than an employee. 

The Ombudsman Referral - The Atkins Pension Plan PO-6152

The above issues were considered recently by the Pensions Ombudsman, in a case which involved an employee who transferred under TUPE in 1995 and was made redundant in 2011.  He claimed that he was entitled to an enhanced pension occasioned by the redundancy because such augmentation had been the practice of his previous employer.

The employee's claim was based on his membership of the Local Government Pension Scheme (LGPS) since 1975. He was subject to a TUPE transfer from Essex County Council to Atkins Ltd. in 1995. Before transfer, Essex C.C. had exercised a policy of providing maximum enhanced pensions on redundancy for employees aged over 50.  This policy had been implemented since 1976 and was in operation at the time of the transfer in 1995.

Under the LGPS regulations, the transferred staff had a right only to be considered for discretionary benefits. However, the employee submitted that, because discretionary benefits were invariably granted by Essex C.C., this practice had created a legally protected, legitimate expectation. He cited a judicial review case[6] in support of this proposition. In that case, a civil service trade union contended that it had a legitimate expectation that its consent would be sought prior to making scheme benefit changes which adversely affected its members.

The Ombudsman's Determination

The Ombudsman rejected the claim that the employee was entitled to additional pension benefits. He noted that the LGPS regulations treated the awarding of added years as a discretionary benefit. Therefore, he concluded that Essex C.C. had been at liberty to revise its policy at any time and could have chosen not to enhance benefits. The Ombudsman determined that the same discretion transferred to Atkins, as an employer. Accordingly, it was within the power of Atkins to change its policy and to consider each individual case at its discretion.

The Ombudsman noted that, in the judicial review case cited, no finding was made on the legitimate expectation argument raised by the trade union. However, in this case, the Ombudsman considered that it would be unreasonable for the employee to expect Atkins to maintain indefinitely the same policy as his previous employer. The new employer was equally entitled to change its position or to regard each case anew. This was especially so given the length of time which had elapsed since the transfer in 1995.

Comment

In addition, this decision does not undermine contract law principles. Prospective employers should investigate whether any employment rights may derive from collectively agreed rules or terms in existence prior to transfer; for example, those agreed with trade unions. They should also consider the legislative requirements of The Transfer of Employment (Pension Protection) Regulations 2005.

Author: Alan Cadman

Case references

[1] Beckmann v Dynamco Whicheloe Macfarlane Ltd [2002] IRLR 578

[2] Martin v South Bank University [2004] IRLR 74

[3] The Procter & Gamble Company v Svenska Cellulose Aktiebolaget SCA and another [2012] EWHC 1257 (Ch)

[4] IBM United Kingdom Holdings Ltd v Dalgleish [2014] EWHC 980 (Ch)

[5] Considine v McInerney [1916] 2 A.C. 162, at 170, per Lord Buckmaster L.C.; Nixon v Attorney General [1931] A.C. 184, at 191 per Viscount Dunedin

[6] R (PCS) v Minister for the Civil Service [2010] EWHC 1027 (Admin)

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

Michael Salters

Partner

I have some 20 years' practical experience in the pensions and employee benefits field, having worked at both leading actuarial consultancies and law firms.