In Robert Whitney v Monster Worldwide Limited, the Court of Appeal upheld an earlier decision by the High Court that “no detriment” assurances given to an employee by a previous employer following closure of its final salary scheme amounted to a binding guarantee that could be enforced even against a subsequent employer. In brief, the claimant, Mr Robert Whitney, was employed by MLS Group Limited (“MSL”) and became a member of the MSL final salary scheme in 1979. In 1989, a decision was taken to wind up the scheme in order to release a funding surplus. Members of the scheme were given the opportunity to join a new money purchase scheme and transfer their accrued benefits to that scheme.

It was recognised that the new scheme was less advantageous than the earlier final salary scheme and there was some concern that this could lead to possible resignations. In an attempt to avoid this, a “no detriment” guarantee was given to 30 key personnel (including Mr Whitney) to the effect that they would be no worse off on retirement in the new scheme than they would have been had they remained members of the final salary scheme. This was confirmed at a number of board meetings, and although it was decided that the move would be confirmed to relevant personnel by way of a side letter, this was never sent.

In February 1997, MSL was acquired by TMP Worldwide Holdings Limited (“TMP”), and assurances were given to employees that the new owners “would honour every MSL commitment including pay and benefits.” Details of the “no detriment” guarantee given to key employees were disclosed to TMP prior to the transfer. In July 1997, the business was transferred under TUPE to TMP (which later became Monster Worldwide Limited (“MWL”)).

Mr Whitney left service in December 1997 and sought to enforce the guarantee given by his previous employers. He also claimed that the guarantee entitled him to annual 5% increases to his pension once in payment, in line with RPI.

The High Court found in 2009 that the guarantee did constitute a binding contractual promise which could be enforced. It rejected arguments put forward by the Defendant that no contractual commitment could be judged to exist since no single document was ever produced setting out the terms and existence of the guarantee. Moreover, it also held that the guarantee had passed to MWL by contractual novation in July 1997; full disclosure of the guarantee had been made at the time of transfer and clear assurances had been given that member benefits would not be reduced because of the transfer.

The Court of Appeal rejected an appeal by MWL. In its view, the “unanimity of view that there was a contract” as evidenced by various board minutes, was sufficient to establish that a contract did exist; the fact that a confirmatory side letter was never prepared and sent as planned was immaterial. Furthermore, the assurances given by MWL following the transfer in 1997 were intended to be relied on, and the guarantee therefore passed to MWL by contractual novation in 1997. The fact that these assurances were given at the time by MWL’s holding company was irrelevant and they were judged to have been given “on behalf of whatever company would ultimately become the employer of MSL’s staff.” The Court of Appeal also decided that Mr Whitney was entitled to annual increments to reflect the increase in the RPI capped at 5%.

Comment: Employers involved in TUPE transfers should be mindful of historic “no detriment” pension guarantees; these can constitute binding contractual commitments which fall outside the occupational pensions exception contained in TUPE and so pass to a new employer by novation. Proper due diligence at the time of transfer is crucial, and adequate warranty protection should be sought to mitigate any risks uncovered.