Knowingly misrepresenting employee benefits in staff transfer schemes is a
sure way of making it through the courtroom door
In the recent case of Hagen and others v ICI Chemicals and Polymers Ltd and
others 2001 IRLR 31, the High Court considered the claims of a number of ex-ICI
employees regarding representations made to them prior to a transfer to a new
company.
More than 400 staff transferred from ICI to Redpath Engineering Services
(RES), and it was accepted by all parties that the Transfer of Undertakings
(Protection of Employment) Regulations 1981 (the Regulations) applied to the
transfer.
Despite the application of the Regulations, the employees argued that they
were only persuaded to agree to the transfer because of certain representations
made to them by ICI.
It was claimed that these representations were false, and as a consequence,
they had been misled and had suffered losses. One of the issues before the
court was whether ICI could be liable for negligent misstatement.
Negligent misstatement
In order for the claim of negligent misstatement to be successful the
employees would have to show that:
– ICI owed them a duty of care
– There had been a breach of this duty, i.e. the representations were in
fact false and could not have been made by someone exercising reasonable care
– They had relied upon these representations and as a result had suffered
loss
– The loss suffered was of a kind falling within the scope of the duty.
When considering each of the representations made it was found that most
were genuinely personal views that were held on reasonable grounds and it was
not reasonable for the employees to rely upon them.
However, it was held that ICI did owe the employees a duty of care and it
was in breach of that duty when it made representations to the employees that
they would have pension benefits broadly similar to that which they had
previously enjoyed.
It was a representation that the employees could reasonably rely upon and
ICI was therefore liable for negligent misstatement by not bringing it to the
attention of employees that their pensions might be adversely affected.
It was held that the losses would be limited to the difference between what
the employees had done and what they would have done had the representation
been correct. It was argued that there was no loss as the employees would still
have transferred.
However, it was held that the effect of collective opposition would have
been likely to stop the transfer going ahead, at least until better terms had
been negotiated regarding the pension.
A further twist was found in relation to the question of liability.
Generally, under the Regulations, liability transfers to the transferee.
However, there is an exception in relation to "rights, powers, duties or
liabilities under or in connection with occupational pension schemes".
Due to the fact that the exception was expressed in such broad terms, it was
held that it made no difference that liability here was in respect of a
misrepresentation about pension rights rather than the rights themselves,
liability would not transfer.
Conclusion
Employers will have to be wary when making statements to union and staff
representatives that give assurances regarding the transferee’s intentions and
the future value of benefits.
If statements are made in this situation without due care as to their
accuracy, the employees will have the right to claim that such statements were
relied upon when agreeing to the transfer and the employer may be liable for
negligent misstatement.
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The answer has to be that an employer should make no specific guarantees
unless absolutely positive that the transferee company will keep to that
intended course of action or have cast-iron indemnities drafted in the transfer
agreement.
By Sue Nickson, a partner and national head of employment law at Hammonds
Suddards Edge
