ECJ delivers Tupe early retirement benefits shock

Once
in a while there is a legal case that turns the world upside down, writes John
McMullen

Beckmann
v Dynamco Whicheloe MacFarlane Ltd
(ECJ – Case C-164/00) is such a case. It
concerns the current exclusion in Regulation 7 of Tupe in respect of benefits
that transfer under Regulation 5. Regulation 7 of Tupe excludes rights under or
in connection with an occupational pension scheme in so far as they relate to
old age, invalidity or survivor’s benefits.

Katia
Beckmann worked for the North-West Regional Health Authority, contributing to
the NHS superannuation scheme. There was a Tupe transfer to Dynamco Whicheloe
MacFarlane (DWM). Subsequently, she was dismissed by DWM by reason of
redundancy. What were her rights?

Under
Section 45 of the Whitley Council conditions of service, she was entitled to an
enhanced lump sum redundancy payment. The transferee, DWM, did not dispute that
this had transferred from the NHS.

However,
under Section 46, there was, payable, under the NHS superannuation scheme, an
early retirement pension and a payment of a lump sum upon attainment of a
certain age (which Ms Beckmann had reached) upon dismissal by redundancy. DWM
argued that this was excluded by Regulation 7. Beckmann argued that it was not
a payment by reason of old age (retirement) but was outside the exemption and
therefore that it transferred.

The
European Court held that any exception to transfer of undertakings must be
narrowly construed. In that connection, it is only benefits paid from the time
when an employee reaches the end of his (or her) normal working life as laid
down by the general structure of the pension scheme in question that are
excluded. Benefits payable earlier
than the normal retirement age (ie early retirement benefits) are transferred
to a transferee even if they are calculated by reference to the rules for
calculating normal pension benefits.

The
second argument on behalf of DWM was that the benefits payable under the
Whitley Council paragraph were payable pursuant to Regulations issued by the
Secretary of State and not the employer and therefore they could not be
transferred from a transferor employer to a transferee employer. Here the court
again ruled in favour of the employee. The benefits concerned transferred
regardless of the fact that those obligations derived from a statutory
instrument.

This
case has potentially far reaching consequences. The referral concerned was
about the transferability of enhanced retirement benefits payable on early
retirement by reason of redundancy to employees leaving public sector schemes
(such as the NHS) to join private employers.

But
the decision seems to go wider. It refers to all early retirement benefits
intended to enhance the conditions of early retirement payable before the end
of the normal working life.

As
such, employers should be especially careful in respect of Tupe transfers and
seek to obtain an indemnity from a transferor in respect of the triggering of
such early retirement benefits.

Against
this, the case has to be referred back to the High Court, which referred the
case to the European Court, and the High Court may well decide that the
decision is more limited. Until then, however, transferees should treat this
case with caution. Another comforting factor is that most early retirements in
private sector schemes arise from ill health. Regulation 7 excludes quite
specifically benefits arising in connection with "invalidity" which
should cover ill health early retirement. However, this will be a matter for
the High Court finally to decide when the case returns to our shores.

John McMullen is a partner
and national head of employment law at Pinsent Curtis Biddle www.pinsents.com

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