Employment: High Court considers transfer of pension rights under TUPE

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Summary: The High Court has provided some clarity on the scope of early retirement pension liabilities that transfer under TUPE. Only enhancements to early retirement benefits transfer, not the employees’ full rights to early retirement benefits.

Whilst the TUPE regulations exempt core occupational pension rights from transferring to the new employer, the ECJ’s Beckmann decision several years ago held that certain occupational pension rights, such as the right to early retirement benefits, do transfer.  What has not been clear since the Beckmann case is what, precisely, does transfer. The High Court explored this issue for the first time in Procter & Gamble Company v. Svenska Cellulosa Aktiebolaget SCA.

Procter & Gamble sold its tissue towel business to SCA. TUPE applied to the sale. There was a dispute about whether the transferring employees’ rights to early retirement benefits went with them, and if so, to what extent.

The High Court took a pragmatic approach to applying the Beckmann decision. It held that the right to benefits up to the normal retirement age transferred, even though early retirement was subject to the employer’s consent.  The Court also held that only enhancements to early retirement benefits transfer, not the employees’ full rights to early retirement benefits.

Practical points for employers

Although the Procter & Gamble case gives some guidance on what occupational pension rights do transfer under TUPE, it leaves many questions unanswered. The issue of who bears the cost of pension liabilities such as these is typically dealt with by an indemnity in the asset sale agreement. As a result of this case, there is likely to be more focus on the terms of such indemnities.

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