Summary

Early retirement benefits did not fall to be treated as such after normal retirement age. Pension instalments paid after normal retirement age fell to be characterised as old age benefits within the Transfer of Undertakings (Protection of Employment) Regulations 2006 reg.10, notwithstanding that the pension had first come into payment before normal retirement age.

Facts

The court was required to determine questions regarding pensions benefits following the sale by the claimant company (P) of its subsidiary (X) to the defendant company (S).

P's pension fund made provision for early retirement benefits. S had not wished to assume any pension liability, but the parties had known that liability for early retirement benefits might transfer under Directive 2001/23and the Transfer of Undertakings (Protection of Employment) Regulations 2006, notwithstanding that under reg.10, liabilities in respect of occupational pensions did not transfer so far as they related to old age benefits. The agreement therefore provided that S would be liable for any pension obligations which transferred under the Regulations, that there would be a valuation of pension liabilities transferring to S in respect of each transferring employee, and that P would pay S for such liabilities by adjustment to the purchase price. On the transfer of X, its employees became deferred members of P's pension fund, having left P but not retired. They lost none of their rights in the fund except for the potential benefit of certain "enhancements" concerned with early retirement. The questions for determination were (i) whether the transferring employees had rights, and P had obligations, which were transferable pursuant to the Regulations; (ii) whether liability for all early retirement benefits, or only liability in respect of the enhancements, transferred under the Regulations; (iii) what the scope of reg.10(2) and the meaning of "benefits for old age" were.

Held

(1) The fact that an entitlement was discretionary did not take it out ofart.3(1) of the Directive, Martin v South Bank University (C-4/01) [2003] E.C.R. I-12859 considered. The phrase "rights and obligations" in art.3(1) and the Regulations was to be liberally interpreted without regard to domestic distinctions between discretionary entitlements and legally enforceable rights. The employees' entitlement and P's concomitant obligation were therefore transferable under the Regulations (see paras 67-68 of judgment). However, the entitlement had never been to be given early retirement benefits but a right to apply for such benefits: the employees had only the expectation of being fairly treated in being considered for the benefits. Applying domestic principles of interpretation, "liabilities" in the sale agreement extended to any liability, obligation, right or benefit which would be treated as transferring under the Regulations, with the proviso that, given that the agreement was to provide for a price adjustment by way of a calculated sum, the liability had to be capable of calculation. The agreement had been intended to enable calculation of the early retirement benefits. The provision for those benefits was a liability that transferred to S and fell to be calculated on the basis of assumptions referred to in the agreement. That conclusion was consistent with the Regulations' objective of safeguarding employees' interests by vesting the power to provide early retirement benefits in the entity employing them (paras 70-71, 75-76, 81-88). (2) Several obligations had to be allocated to calculate the extent of P's obligation to pay S: the entitlement of each transferring member to be considered in good faith for early retirement benefits was transferred to S; the obligation to provide a standard pension was met by the vesting of a deferred pension; the entitlement to a deferred pension, once vested, conferred an interest in P's pension fund which was the property of the employee and was unaffected by the transfer of his employment to S; and the acquisition by the employee of a vested interest discharged the employer company's contractual obligation in respect of deferred benefit, save for additional entitlements such as the enhancements, meaning that the only relevant obligations in respect of the early retirement benefits, apart from those relating to the enhancements, were satisfied by the provision of deferred pensions in P's fund which were funded in accordance with obligations which were not enforceable by the employees. The only obligation to transfer was liability in respect of the enhancements. That result accorded with the Regulations' objectives (paras 103-111). The same result could be reached by purposive interpretation of reg.4(2). Regulation 4(2)(a) and (b) were to be construed together so as to confine the rights, powers, duties and liabilities to be transferred to those under a continuing contract of employment that had not already been substantially satisfied (paras 122-123). Further, it could never have been intended that the agreement should operate in such a way as to require P to pay again for benefits it had already provided and remained liable to fund, or that S should receive money which it would not actually have to pay out; the intention had plainly been to provide S with a payment calculated to hold it harmless against a liability imposed by the Regulations (para.127-128). (3) The question was whether benefits first triggered as early retirement benefits had to be treated as such even after normal retirement age, therefore never becoming an old age benefit. Such a rule would be counter-intuitive. It was obvious that pension instalments paid after normal retirement age fell to be characterised as old age benefits, notwithstanding that the pension had first come into payment before normal retirement age. Further, the European Court of Justice had not indicated that there should be a rule to the contrary, Beckmann v Dynamco Whicheloe Macfarlane Ltd (C-164/00) [2002] All E.R. (EC) 865 and Martin considered (paras 146-148).

Judgment accordingly