Court of Appeal holds that liability for an employer’s pre-transfer pension guarantees passed to new employer alongside TUPE transfer.
The Court of Appeal upheld a High Court decision that assurances given by an employer to an employee about his pension entitlement (referred to as a “no detriment” pension guarantee) were capable of amounting to a binding commitment that could be enforced against a transferee of the employer's business almost 20 years later.
Although the pension guarantee was excluded from transfer under the statutory mechanism provided by TUPE, it passed to the new employer by way of contractual novation, as the previous employer’s holding company had promised to honour all existing pay and benefit commitments.
This case provides an important reminder and warning to employers that the "pension exception" under TUPE should not be seen as creating a complete bar on the transfer of pension rights and liabilities. Such rights and liabilities may still transfer under contract law. In light of this, employers who are contemplating buying a business should ensure they undertake proper due diligence and obtain adequate warranty protection from the seller in relation to pension promises given.
In this case, changes to the pre-transfer employer’s pension scheme had been implemented in 1989/1990. The court found that the claimant employee had received a guarantee from his “pre-transfer” employer that he would be no worse off on retirement in the new scheme than he would have been had he remained in the old, final salary scheme. Prior to the acquisition of the employer’s business in 1997, the seller gave assurances to its employees that the purchaser of the business "would honour every…commitment including pay and benefits".
The Court of Appeal considered that the promise in relation to pension benefits amounted to a binding contractual commitment. The court also held that, quite apart from the exclusion in relation to pension rights under TUPE, the guarantee had passed to the purchaser of the business by contractual novation in 1997.
The employee did not need to establish negligent misstatement on the part of his employer, as had been the case in previous case law in this area. The court simply concluded that there was sufficient evidence that the employer had made a free-standing contractual commitment that its pre-transfer assurances would be honoured. The court held that these can pass to a new employer by novation, outside of the statutory transfer mechanism provided by TUPE.