Private employers hiring public sector workers under TUPE need to be aware
of potential liability when implementing
redundancies
On 4 June 2002, the European Court of Justice (ECJ) determined that early
retirement benefits, which were payable under a superannuation scheme, were not
excluded from transfer under the Transfer of Undertakings (Protection of
Employment) Regulation 1981 (TUPE) as they were not an old age, invalidity or
survivor’s benefit.
Behind the scenes
Mrs Beckmann worked within the NHS for the North-West Regional Health
Authority under the General Whitley Council’s Conditions of service (the
‘Conditions’). She also contributed to the NHS superannuation scheme. Section
46 of the conditions related to employees aged between 50 and retirement age.
It stated that employees were entitled to a retirement pension and compensation
if they were made redundant and had at least five years service within the NHS
superannuation scheme. The payments are implemented by statutory regulations,
which provide for:
– an early retirement pension based on actual years of pensionable service
– a payment of a lump sum normally payable on retirement
– compensation in the form of an annual allowance
– a lump sum compensation payment being three times the annual allowance
On 1 June 1995, Mrs Beckmann’s employment transferred under TUPE from the
NHS to Dynamco Whicheloe Macfarlane (DWM). However, less than two years later,
Mrs Beckmann was made redundant in May 1997.
On termination of her employment, DWM did not make any payments to which Mrs
Beckmann would have been entitled under section 46 of the conditions.
Consequently, she brought a claim in the High Court seeking a declaration that
she was entitled to these payments. The Court referred two questions to the
ECJ.
Acquired Rights Directive
The first question was whether or not the employee’s entitlement to an early
payment of pension and lump sum was a right to old age, invalidity or
survivor’s benefit within the meaning of Article 3(3) of the Acquired Rights
Directive. Article 3(3) excludes employee’s rights to old age, invalidity or
survivor’s benefits under a company pension scheme from transferring to a new
employer.
The ECJ determined Article 3(3) should be applied narrowly in this case. As
a result, the exception in Article 3(3) was taken to only apply to the
provisions laid out in the Article itself. Early retirement benefits payable on
redundancy were seen as different and the ECJ decided Article 3(3) had no
bearing.
Changed obligations
The second question was whether the obligation to make payments passed to
DWM under the Acquired Rights Directive.
The ECJ noted that apart from Article 3(3) outlined above, no exception to
the transfer of terms is provided for by the directive and that all other
rights of employees, which are not covered by those exceptions, transfer. The
fact the rights and obligations in question were implemented by statutory
regulations was found to have no bearing. The ECJ decided this couldn’t stop
the rights or obligations from being handed to the transferee under the
directive.
Conclusion
– This decision is a logical application of the directive and the TUPE
regulations. On first reading it appears that it may not be of very general
application as it only applies to particular NHS employees. However, a large
number of public sector employees are employed on very similar conditions.
– Private sector companies who take on public sector employees under TUPE
will need to be aware of the potential liability if they intend to implement
redundancies. Employees who were entitled to early retirement payments when
employed in the public sector will retain their rights to such payments after a
transfer.
Christopher Hogg is a member of the employment, pensions and benefits
group at international law firm Stephenson Harwood
