In The Proctor & Gamble Company v Svenska Cellulosa Aktiebolaget and another  EWHC 1257 (Ch), the High Court has given guidance about the extent to which liability to provide early retirement benefits may transfer under TUPE to a buyer of the business or on a change of service provider.
Broadly, under the provisions of the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE"), when employees transfer to a new employer as a result of the sale of a business, the rights and obligations of the transferring employer under the employees' contracts of employment automatically pass to the new employer. TUPE reflects the provisions of the EC Directive 2001/23/EC ("the Acquired Rights Directive").
Rights and obligations relating to an occupational pension scheme in relation to "old age, invalidity or survivors'" benefits, however, do not automatically transfer under TUPE.
In 2002, the European Court of Justice (ECJ) (as it was then known) held in the cases of Beckmann v Dynamco Whicheloe MacFarlane Ltd  IRLR 578 and Martin v South Bank University  IRLR 74 that enhanced benefits payable on redundancy and early retirement were not 'old age' benefits within the meaning of TUPE. Obligations in relation to such benefits, commonly known as 'Beckmann and Martin' rights, therefore did transfer to the buyer under TUPE.
However, it has long been accepted that Beckmann and Martin are potentially distinguishable on their facts, and that the extent of their general application has been uncertain, for a number of reasons:
- The enhanced benefits in Beckmann were payable from a separate supplementary scheme funded by the employer and not from the main scheme (the pension scheme of which Mrs Beckmann was a member). The result is that the benefits would ultimately have been paid not by the scheme proper but by the employer. The position may be different if enhanced benefits of the type in Beckmann are provided through the main scheme.
- The benefits in Beckmann were also payable from the date of redundancy until normal retirement date (NRD); from NRD, Mrs Beckmann became entitled to her ordinary retirement pension from the NHS pension scheme. It is arguable that under the Beckmann principle, the part of the benefit payable from redundancy until NRD is not an 'old age benefit' payable at the end of working life, although the remainder is. However, there is nothing in Beckmann or Martin to suggest that benefits can be split in this way.
- In both Beckmann and Martin, the applicants had been employed by public sector employers. The scope of the decisions in Beckmann and Martin to transfers in the private sector is debatable.
Parties to a business transfer have often dealt with the above uncertainties by way of an appropriate indemnity from the seller to the buyer.
The issues discussed in this case arose in connection with the sale of Proctor & Gamble's tissue towel business to a Swedish company, Svenska Cellulosa Aktiebolaget ("SCA") in March 2007. Some of the employees transferring to SCA were members of the defined benefit section of the P&G Pension Fund.
The rules of the P&G Fund (which had an NRD of 65) provided early retirement benefits ("Enhancements") to members as follows:
- Members could retire from age 55 with the employer's consent and receive an actuarially reduced pension. Members were entitled in these circumstances to a 'bridging pension' until State Pension age (an increased pension from early retirement to State Pension age to account for the fact that the State Pension came into payment later).
- Members who had accrued 15 years' continuous service could benefit from more generous actuarial reduction factors based on their length of service.
Under the terms of the asset sale and purchase agreement, a reduction was to be applied to the purchase price in respect of all pension liabilities passing to SCA under TUPE. An indemnity had been offered by P&G in respect of the pension liabilities, but SCA refused it.
SCA argued that the early retirement rights in respect of the transferring employees did pass to it under TUPE and that the purchase price for the business should be adjusted accordingly under the terms of the asset sale and purchase agreement ("ASPA"). SCA's actuary calculated that an adjustment of £19 million was needed.
In considering the extent to which the early retirement benefits passed to SCA under TUPE, Mr Justice Hildyard considered the following issues:
Whether the right to be considered for an early retirement pension under the P&G Fund was capable of passing under TUPE. Mr Justice Hildyard held that a 'right' for the purposes of the Acquired Rights Directive and TUPE includes a right to be properly considered for a benefit. The right of the transferring employees to be considered for an early retirement pension did therefore transfer to SCA under TUPE. Hildyard J also said that SCA was obliged to consider any applications for early retirement from a member fairly and in good faith. Moreover, the right to be considered for early retirement benefits fell within the term "liabilities" under the price-adjustment mechanism under the ASPA as the right was capable of calculation, by reference to the actuarial assumptions referred to in the ASPA. The purchase price did therefore fall to be reduced to reflect the passing of these liabilities under TUPE to SCA.
Whether transferring members who would be entitled to a deferred pension from the P&G Fund are also by virtue of TUPE entitled from SCA to a right to all early retirement benefits (including that element of the early retirement benefit that they are entitled to receive from the P&G Fund). Hildyard J held that only the transferred rights or benefits comprised within early retirement benefits "which have not already been met in economic substance by virtue of transferring members becoming entitled to deferred pensions in the P&G Fund will transfer over to SCA". In effect, this meant that only liability for the Enhancements transferred to the buyer.
Whether the post-NRD instalments of an early retirement pension transferred to SCA. The enhanced early retirement benefits in this case formed part of a single pension which was payable for life from the Scheme. This differed to the position in Beckmann and Martin, where the enhanced benefits payable on redundancy were payable from a source other than the main pension scheme and were payable until NRD only. Therefore, the third point that the court considered was whether the post-NRD instalments of an early retirement pension transferred to SCA. Hildyard J held that post NRD elements were 'old age benefits' which fell within the scope of the TUPE exception, meaning that the obligation to provide them did not pass to the buyer.
The issue of whether liability in respect of the pre-NRD instalments of the early retirement pension transferred under TUPE to SCA appears to have been conceded by P&G and therefore was not fully argued. The judgment cannot be considered definitive in this respect.
There are also a number of outstanding uncertainties concerning the scope of the Beckmann and Martin cases which were noted in the judgment and which have yet to be clarified. Most significantly, in Beckmann and Martin, there was a contractual right to the enhanced benefits and it is uncertain whether TUPE applies where the enhanced rights derive solely from a pension scheme. Doubts also remain as to the extent to which Beckmann and Martin apply to transfers in the private sector, given that the applicants in those cases were employed in the public sector prior to the relevant TUPE transfer. Clarification on these points is unlikely to happen without reference to the ECJ.