The High Court has recently handed down a judgment which could see companies which take on secondees becoming liable for a share of the originating employer’s section 75 debt.
Under section 75 of the Pensions Act 1995, an employer debt will arise in relation to a defined benefit scheme on the occurrence of a trigger event. These trigger events include the scheme being wound up; the trustees applying for entry into the Pension Protection Fund; the employer entering into a members’ voluntary liquidation; or an insolvency event occurring such as the company entering into administration.
In the case in question, a section 75 debt was triggered when MF Global UK Services Limited (MFG Services), which operated a defined benefit scheme, went into administration.
All of the employees of MFG Services were seconded to a number of other UK companies within the same group but the majority of employees were seconded to MF Global UK Limited (MFG UK). MFG Services did not carry out any trading activities and had no other income. While there was no express agreement between MFG UK and MFG Services, there was an agreement in place between MFG UK and its parent company, MF Global Holdings Europe Limited, for the secondment of the employees. This agreement stated that MFG UK would meet the payroll costs (including pension contributions) of MFG Services while employees were seconded to them.
The court considered two main issues:
- Whether there was a contract between MFG Services and MFG UK for the secondment of the staff (including liability for the pension costs)
- If there was a contract, whether its terms would require MFG UK to indemnify MFG Services in respect of the section 75 debt.
The court found that there was an implied contract between the parties which required MFG UK to indemnify MFG Services for the section 75 debt. The judge went further to say that the agreement between the holding company and MFG UK would have, if between the relevant parties, been broad enough to cover liability for the section 75 debt, notwithstanding that section 75 debt was not specifically indemnified.
Although this case is very fact-specific, there will no doubt be other companies which organise their business operations in a similar way. It is also clear that the interpretation of the wording in the express agreement will have an impact on the way in which these types of agreement are drafted in the future.