When employees transfer to a buyer as a result of the sale of a business, the European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003 (“TUPE”) provide that all rights and obligations of the seller under the employees’ contracts of employment automatically pass to the buyer, with the exception of benefits under occupational pension schemes relating to “old age benefits”.

In the 2002 cases of Beckmann and Martin, the European Court of Justice held that certain benefits under a pension scheme, such as specifically enhanced benefits payable on redundancy and early retirement, were not “old age” benefits within the meaning of TUPE and therefore did transfer to the buyer under TUPE. These judgments cast some uncertainty on the extent to which pension liabilities may transfer to a buyer on an asset sale.

In the recent Proctor & Gamble case, the English High Court clarified the extent of the benefits under a pension scheme which automatically transfer to the buyer on an asset purchase. It held that:

• if the right to early retirement benefits is discretionary, the buyer is obliged to consider any application for the early retirement benefit fairly and in good faith, but the buyer only assumes liability in relation to any enhanced element of the benefit (i.e. the amount over and above any deferred pension that remains payable from the seller’s scheme); and 
• the claim related only to benefits payable from early retirement up to normal retirement date as early retirement benefits become “old age” benefits once they continue to be paid from the same scheme after normal retirement date.

Comment

This is a useful decision for those involved in asset sales as it pragmatically limits the maximum size of a claim to the payment in the years up to normal retirement date, a much lower level than was previously feared.  However as an uncertain liability still transfers on an asset sale, a buyer may wish to seek an indemnity from the transferor in respect of such liabilities.

While the decision of the English court is not binding in Ireland, it would be persuasive authority before an Irish court. It should be noted, however, that the decision of the English High Court is likely to be appealed.

Contributed by Lorna Osborne & Mary Greaney