Implications of the Beckmann decision for transactions

Earlier this year, the European Court of Justice decided the case of Beckmann v Dynamco Whicheloe Macfarlane. The case concerned a member of the NHS pension scheme who was transferred to a private company and later made redundant. Had the member not transferred, she would have been entitled to certain benefits from the NHSscheme on redundancy together with payments to enhance those benefits.

On the transfer of a business, rights and duties in respect of employees transfer to the new employer under the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE). However, benefits for old age, invalidity or survivors provided under an occupational pension scheme are exempt from such transfer. The member argued that the rights she was claiming did not fall within this exemption and her new employer should therefore be under an obligation to provide them.

The ECJ held that the exemption in TUPE had to be construed narrowly and that it is only "benefits paid from the time when an employee reaches the end of his normal working life as laid down by the general structure of the pension scheme in question, and not benefits paid in circumstances such as those in point in the main proceedings (dismissal for redundancy) that can be classified as old-age benefits, even if they are calculated by reference to the rules for calculating normal pension benefits". Therefore, the obligation to provide the redundancy benefits at issue was outside the exemption and did transfer to the new employer.

Implications

There has been much speculation as to what Beckmann actually means as the judgment contained little analysis. However, the following general points can be made:

• For a benefit to transfer under TUPE, there must be a contractual right to it in the first place and liability in relation to its provision passes to the new employer, not the scheme trustees.
• It is far from clear what type of rights Beckmann will take outside the pensions exemption. It seems highly unlikely that it will affect ill health benefits as the exemption specifically applies to "invalidity" benefits under occupational pension schemes. However, it could potentially affect other types of early retirement benefit - this will need to be considered on the facts of each case.
• Where the right to benefits covered by TUPE is qualified by a requirement for employer consent, it seems likely that the consent requirement will also transfer. However, the receiving employer may be under a duty to act in a manner consistent with the transferring employer’s practice.
• Questions dealing with Beckmann and relevant warranties/indemnities are likely to become a feature of commercial transactions. Where employees are being transferred under TUPE, checks will need to be made to determine whether there are any benefits which could be covered by Beckmann which the new employer will acquire an obligation to provide.
• There could be claims under existing warranties in relation to pre-Beckmann transfers which will give rise to difficult issues such as what happens when the receiving scheme was a defined contribution scheme and has no funding to provide the relevant benefits?

For many schemes and employers the judgment may have little or no impact. However schemes which have taken transfers from public or former public sector schemes or certain other key industries may need to review the benefits which they are obliged to provide to transferred employees. In addition, exactly what benefits a new employer will acquire an obligation to provide is something which will need to be considered in future transactions.

Finally, it should be noted that even without the decision in Beckmann we would probably have ended up in a similar position as the Government announced in its 2001 consultation paper on amending TUPE that its policy was that, whatever the ruling in Beckmann, benefits of the kind at issue should pass across in a TUPE transfer and it proposed to make specific provision to this effect.

For further information please contact Nigel Moore on +44 (0)20 7367 3405 or at [email protected]