Employment Rights and Pensions

Question 1

Different employment statuses?

Answer 1

· Employee
· Independent contractor
· Worker

Question 2

What makes someone an employee?

Answer 2

• Performs work personally for the company as their employer
• Contract of employment
• Employer has control over what, where, when, how work is done>Mutual obligations to provide and perform work>Other economic and integration factors

Question 3

What makes someone an independent contractor?

Answer 3

• Individual is in business on their own account providing services to a client or customer of that business
• works under a contract for services rather than a contract of service
• Freelance workers or self employed.
• No employment relationship

Question 4

What makes someone a worker?

Answer 4

• Performs services personally as part of a profession or business undertaking carried on by someone else where the other party to the contract is not, by virtue of the contract, a client or customer of the worker
• Works under a contract – other factors for employee may not be present
• Casual workers, locums, temporary workers, consultants

Question 5

Statutory rights that employees have?

Answer 5

· Employees only: Unfair dismissal rights; Statutory redundancy rights, Working time rights (i.e. maximum working hours); Minimum wage rights (i.e. minimum wage per hour)

also have a right to provision of a pension under the ‘auto-enrolment’ pensions legislation and rights under anti-discrimination legislation.

Question 6

Statutory rights that workers have?

Answer 6

· Workers (including employees): Working time rights (i.e. maximum working hours); Minimum wage rights (i.e. minimum wage per hour)

also have a right to provision of a pension under the ‘auto-enrolment’ pensions legislation and rights under anti-discrimination legislation.

Question 7

Self-employed rights?

Answer 7

· Self-employed independent contractor: No rights under ERA

Question 8

When does a wrongful dismissal arise? Where can they be brought to? What are the remedies for wrongful dismissal?

Answer 8

· A claim for wrongful dismissal arises where the employer has dismissed the employee in breach of the terms of their employment contract. Wrongful dismissal claims can be brought in the Employment Tribunal or court. The remedy for wrongful dismissal is damages (and the general duty to mitigate applies).

Question 9

When does a unfair dismissal arise? Where can they be brought to? What are the remedies for unfair dismissal?

Answer 9

· Unfair dismissal is a statutory claim that can only be brought by employees who also satisfy certain other qualifying criteria. Unfair dismissal claims can only be commenced in the Employment Tribunal. To successfully defend an unfair dismissal claim, the employer must have (1) a fair reason for the dismissal (for example, capability or conduct) and (2) the dismissal must have been fair in all the circumstances. This means, the dismissal procedures followed must be fair. The main remedy for unfair dismissal is compensation.

Question 10

When does a constructive dismissal arise? What are the remedies for constructive dismissal?

Answer 10

This occurs where it is the employee who leaves the job, but they are compelled to do so by the conduct of the employer. The employer’s conduct must amount to a fundamental breach of the employment contract to which the employee must have resigned in response. The remedy is damages for breach of contract.

Question 11

What is statutory redundancy?

Answer 11

· Statutory redundancy is a fair reason for dismissal: following a statutory procedure for redundancy allows an employer to dismiss a number of employees who are no longer required in the business without the dismissal being unfair. There is a statutory minimum redundancy payment.

Question 12

· A payment in lieu of notice clause (PILON)?

Answer 12

· A payment in lieu of notice clause (PILON) allows the employer to pay the employee for the period covered by their notice period, rather than require the employee to work during their notice period.
· If the employment contract contains a PILON clause and the employer dismisses the employee, paying them in accordance with the PILON clause - instead of employing them until the end of their notice period – then there will be no breach of contract and no claim for wrongful dismissal.

Question 13

Garden leave clause?

Answer 13

· A garden leave clause allows the employer to require the employee to stay at home during their notice period – reducing the risks of disruption to the business.

Question 14

Why are restrictive covenants put in employment contracts?

Answer 14

· To protect its business an employer may put restrictive covenants in the employee’s employment contract to restrict what they can do after their employment has ended.

Question 15

Types of constructive dismissal?

Answer 15

• Non-competition This prevents the ex-employee from working for a competitor or setting up a competing company.
• Non-dealing This prevent any dealings between the ex-employee and customers
• Non-solicitation/poaching This prevents the ex-employee soliciting business of customers or prevents the ex-employee poaching members of the team to join a new business.

Question 16

· Restrictive covenants are void and unenforceable unless both:

Answer 16

• They protect a legitimate interest of the business; and
• They go no further than is reasonably necessary to protect that legitimate interest
  · Reasonableness factors: How long? How far? Needs of business/ Duties of employee
  · If the employer dismisses an employee in breach of contract or if the employee resigns as a result of a constructive dismissal, then any restrictive covenants are likely to be unenforceable.

Question 17

When does TUPE apply?

Answer 17

· TUPE applies to a relevant transfer which includes business transfers and service provision changes. TUPE does not apply to share sales.

Question 18

What happens when TUPE applies?

Answer 18

· Where TUPE applies the buyer becomes the employer of all employees, if they are employed in the business, or part of the business being sold, immediately before the transfer. This includes employees dismissed prior to the transfer and because of the transfer where there is no economic, technical or organisational (ETO) reason for the dismissal. In addition, such a dismissal will be automatically unfair.
· Employees who object to being employed by the transferee will not transfer. The transfer will instead operate to terminate their employment, but it will not constitute a dismissal.
· Any changes to employment terms, where the sole or principal reason for the variation is the transfer itself, will be void, unless the variation is for an ETO reason and the employer and employee both agree to the variation.

Question 19

What is a relevant transfer for TUPE?

Answer 19

• “a transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another person where there is a transfer of an economic entity which retains its identity”. (Reg 3(1)(a))

· The sale of a business as a going concern will generally constitute a ‘relevant transfer’ for the purposes of TUPE.

Question 20

What happens to employment contracts when TUPE applies?

Answer 20

· Where TUPE applies, there is an automatic transfer of the contracts of employment from the seller (the ‘transferor’) to the buyer (the ‘transferee’) and the contracts continue as if originally made between the employees and the buyer – see Reg. 4(1).
· Remember that TUPE will not apply on a share sale. On a share sale employees of the target company before completion will remain as employees of the target company after completion

Question 21

Which employees are affected by TUPE?

Answer 21

· Regulation 4(1)
- “A relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor and assigned to the organised grouping of resources or employees that is subject to the relevant transfer, which would otherwise be terminated by the transfer but any such contract shall have effect after the transfer as if originally made between the person so employed and the transferee.”
· Regulation 4(1) specifically applies to employees assigned to the business being transferred, so employees will not transfer automatically to the buyer if they do not work in the business or part of the business being transferred
· The transfer of rights and liabilities will not occur if the employee informs the seller or buyer that they object to becoming employed by the buyer.
- If this occurs, the transfer will terminate the employee’s contract with the seller but the employee will not be treated as having been dismissed by the seller and will not have any right to claim unfair dismissal. The employee will also not be entitled to any statutory or contractual compensation on termination (unless they object and resign either in response to a repudiatory breach by the employer or to a substantial change to their working conditions which is to their material detriment).

Question 22

How do you assess whether an employee is ‘assigned’ to the business being transferred?

Answer 22

· Where only part of a business is being transferred, or where employees work in more than one business operated by a company, employees will not transfer to a buyer if they are not ‘assigned’ to the business or part business transferred.
· The court will look at an employee’s function rather than the terms of their employment contract to determine whether employees are wholly engaged or assigned to the business (Botzen v Rotterdamsche Droogdok Maatschappij [1986] 2 CMLR 50).
· The Employment Appeal Tribunal has set out further guidance in the Duncan Webb case – Duncan Webb Offset (Maidstone) Ltd v Cooper & Others [1995] IRLR 633. In determining the question of whether an employee is ‘assigned’ to the business or part business transferred, tribunals should consider the following:
* the amount of time spent working in one part of the business over the other;
* the value given to each part of the business by the employee;
* contractual terms setting out what the employee’s job comprises; and
* the allocation of the cost for the employee’s services.

Question 23

In determining the question of whether an employee is ‘assigned’ to the business or part business transferred, tribunals should consider the following:

Answer 23

• the amount of time spent working in one part of the business over the other;
• the value given to each part of the business by the employee;
• contractual terms setting out what the employee’s job comprises; and
• the allocation of the cost for the employee’s services.

Question 24

Can sellers dismiss employees before a transfer to prevent the automatic transfer principle applying?

Answer 24

· Employees only transfer if they are employed in the business being sold immediately before the transfer OR if they would have been so employed if they had not been dismissed in certain circumstances prior to the transfer (Reg. 4(3)).
· The circumstances that would lead to employees still being treated as transferring to the buyer are set out in Regulation 7(1) - which provides that if the sole or principal reason for an employee’s dismissal is the transfer itself, it is automatically unfair UNLESS the dismissal was for an economic, technical or organisational reason entailing a change in the workforce (‘ETO Reason’) (see Reg 7(2)). ETO Reasons could include (for example) a reduction in the requirement for employees carrying on a particular function in the business
· Whether or not the sole or principal reason for a dismissal is the transfer itself is a question of fact. Dismissals occurring shortly before or after completion are likely to be by reason of the transfer, but dismissals taking place weeks before completion are not likely to be by reason of the transfer - unless, at the time of the dismissal, a buyer had been found.
· If the transfer is the reason for the dismissal, then either (1) there is no ETO Reason for it – in which case the dismissal is unfair and the liability for the dismissal transfers to the buyer under TUPE; or (2) there is an ETO Reason – in which case the dismissal is potentially fair (as a redundancy or a dismissal for another substantial reason) and there is no TUPE transfer to the buyer

Question 25

What happens if the transfer is the reason for the dismissal?

Answer 25

either (1) there is no ETO Reason for it – in which case the dismissal is unfair and the liability for the dismissal transfers to the buyer under TUPE; or (2) there is an ETO Reason – in which case the dismissal is potentially fair (as a redundancy or a dismissal for another substantial reason) and there is no TUPE transfer to the buyer

Question 26

• What rights and liabilities do not transfer automatically under TUPE?

Answer 26

• rights and liabilities under or in connection with an occupational pension scheme which relate to benefits for old age, invalidity or survivors (however, an employer’s liability in respect of a personal pension scheme will transfer to the buyer, as will certain enhanced early retirement/redundancy benefits under an occupational pension scheme) - Reg 10(1); or criminal liabilities.

Question 27

Which rights and liabilities transfer automatically under tupe?

Answer 27

· Under TUPE the buyer inherits the transferring employees on the terms and conditions which existed with the seller. The buyer also inherits all accrued rights and liabilities connected with the employment contracts of the transferring employees: for example, an employee can sue the buyer for a breach of contract committed by the seller pre-transfer.

Question 28

What happens when the buyer changes the terms and conditions of the employment contract?

Answer 28

· Any changes to an employment contract at any time cannot be made unilaterally and must be agreed by the employee and employer. If a buyer unilaterally imposes changes to terms and conditions, the employees could resign and claim constructive dismissal.
· TUPE further restricts the changes which an employer may propose. A change to the employee’s terms and conditions is void if the sole or principal reason for the variation is the transfer.

Question 29

· However, an employer may vary the employee’s contract if any of the following exceptions apply:

Answer 29

• the reason for the variation is not related to the transfer;
• the reason for the variation is an ETO Reason and the employer and employee agree the variation;
• the terms of the contract permit the employer to make the variation;
• the variation is entirely positive for the employee;
• there are ‘relevant insolvency proceedings’ and the specified statutory conditions are satisfied (NB: this condition is beyond the scope of the module); or
• there is a collective agreement (these are agreements between employers and trade unions) from which the term or condition has been incorporated into the employment contract

Question 30

· The Department for Business, Energy and Industrial Strategy has provided some guidance (‘BIS Guidance’) on examples of circumstances which could result in changes to employee terms that are unrelated to the transfer and so would not be void under TUPE:

Answer 30

• the sudden loss of an unexpected order by a manufacturing company;
• a general upturn in demand for a particular service; or
• a change in a key exchange rate.

Question 31

How is Exception 1: The reason for the variation is not related to the transfer determined?

Answer 31

· If the variation is because of the transfer but there are other reasons for the variation, then the surrounding circumstances must be considered to decide whether the sole or principal reason for the change is the transfer. For example, if the changes are part of a wider reorganisation which has nothing to do with the transfer then they may be effective. There is no time period after which the changes will no longer be deemed to be connected to the transfer, so this is a continuing risk for buyers.

Question 32

How to determine Exception 2: The variation is an ETO Reason?

Answer 32

· It may be possible to vary the employees’ terms and conditions where the reason for the variation is an ETO Reason. However, the grounds for a valid ETO Reason have been quite restrictively defined by case law. In particular, a desire to harmonise terms and conditions with the buyer’s existing employees (which is a common motivation for a buyer) does not of itself amount to an ETO Reason.

Question 33

· BIS Guidance has examples of what an ETO Reason may constitute as there is no statutory definition: examples include:

Answer 33

• a reason relating to the profitability or market performance of the new employer’s business (an economic reason);
• a reason relating to the nature of the equipment or production processes which the new employer operates (a technical reason); ora reason relating to the management or organisational structure of the new employer’s business (an organisational reason).
  · Even if a valid ETO Reason exists, there is still the requirement for the employee to consent to the changes.

Question 34

How to determine Exception 3: The terms of the contract permit the employer to make the variation?

Answer 34

· An example of when this would apply is if a contract already permits the employer to vary the shift times for its employees: in this case, making a change in shift times after the transfer will not be void under TUPE.
· However, an employer cannot simply circumvent TUPE by inserting a term in the contract which gives it the ability to make changes in the future. If the sole or principal reason for inserting that power is the transfer, this will be caught by the general restriction and will be void.

Question 35

How to determine Exception 4: The variation is entirely positive for the employee?

Answer 35

· The BIS Guidance states that “changes to terms and conditions agreed by the parties which are entirely positive are not prevented by the Regulations”. Therefore, only detrimental or negative changes to terms and conditions (or positive changes made before the transfer – see case below) would appear to be void if they are due to the transfer itself.
· Key cases: The Court of Appeal held in Regent Security Services Limited v Power [2007] EWCA Civ 1188 that an employee can agree to an additional beneficial right in their contract of employment without being deprived of any rights that transfer and that this will not be void under TUPE. In this case the employee agreed with the transferee to an increase in this retirement age from 60 to 65 years and was found to have contracted into and obtained the right to continue working to 65 years if he so wished.
· In Ferguson v Astrea Asset Management LTD [2020] UKEAT 0139-19-1505, the Employment Appeals Tribunal found that variations agreed between employees and a transferring employer prior to a TUPE transfer, which were wholly in the employees’ favour (e.g. a new guaranteed bonus of 50% of salary), were void because they had clearly been entered into solely as a result of the upcoming transfer.

Question 36

· The parties to a business transfer cannot prevent TUPE applying but they can share the risks involved:

Answer 36

• Schedule of employees: Because of the uncertainty in determining which employees will transfer under TUPE and which will not, the parties will often agree a list of transferring employees. These are the employees which the parties think will transfer; they will not necessarily be the individuals who do transfer by operation of law under TUPE.
• Warranties: The buyer will carry out full due diligence of all transferring employees’ terms and conditions because it inherits those terms and conditions on a TUPE transfer. The seller will provide warranties that all of the information is correct and accurate and that no employment claims are threatened or pending
• Indemnities: The parties will give cross-indemnities, in order to share the risk of (1) certain employees who are not in the schedule of employees but who claim that they should transfer to the buyer under TUPE and/or (2) certain employees who are in the schedule but who claim that they should not transfer under TUPE. The standard position is that the seller picks up the cost if an employee who is not on the schedule transfers by operation of law; the buyer picks up the cost if an employee who is on the schedule does not in fact transfer under TUPE and brings a claim against the seller.

Question 37

Duty to inform and consult?

Answer 37

· Regulation 13 states that both the seller and buyer must provide information to, and in certain circumstances consult with, representatives of their own employees who may be affected by the transfer or by measures taken in connection with it (‘affected employees’).
- Essentially joint and several obligation to inform employees who may be transferred or jobs may be affected by the transfer of the facts around the transfer and whether any measures are proposed

Question 38

· The BIS Guidance lists the following examples of affected employees:

Answer 38

• employees who are to be transferred;
• employees of the transferor who are not being transferred to the transferee but whose jobs may be affected by the transfer; and
• employees of the transferee whose jobs may be affected by the transfer.

Question 39

· Appropriate representatives may be:

Answer 39

• Representatives of a recognised trade union; or
• Elected employee representatives.

Question 40

Duty to consult relationship with Trade Union?

Answer 40

· Where there is a recognised trade union, the employer must consult with those representatives rather than with any other employee representatives.

Question 41

How must information be given?

Answer 41

· Information must be given ‘long enough’ before the transfer to enable any consultation to take place – so this either requires the employees to be informed before the transaction (which may have confidentiality issues) or there will need to be a split signing and completion.
· Information to be provided must set out the fact of the transfer, when it is to take place, the reasons for it, the legal, economic and social implications for the affected employees and whether the seller and/or buyer envisage taking any ‘measures’ in relation to the employees (or if none, to state there are no measures intended). The buyer must inform the seller if there are any measures it is planning after completion, so that it can pass that information on to its affected employees.

Question 42

What are measures?

Answer 42

· ‘Measures’ would most obviously include planned redundancies or changes to job location. However, even minor changes to an employee’s situation (for example, changing floors or using a different telephone system) are capable of amounting to ‘measures’ which could require consultation.

Question 43

When is consultation required?

Answer 43

· Consultation is only required if ‘measures’ are planned in relation to a party’s own affected employees. Therefore, transferring employees of the seller will NOT be consulted about measures that the buyer is planning to take – only informed about them by the seller.

Question 44

• Consequences of failure to comply with informing/consulting obligations

Answer 44

· If the information and/or consultation process is not carried out in accordance with the Regulations, the appropriate representative may bring a claim in the Employment Tribunal, within 3 months of the transfer.
· A Tribunal has discretion to award up to 13 weeks’ actual pay per affected employee (“appropriate compensation”). This can obviously amount to a large amount of money, depending on the number of employees concerned.
· If a claim is upheld against the transferee, then the transferee will be liable to pay the appropriate compensation. But if a claim is upheld against the transferor, then (1) the transferee may be solely liable if the breach resulted from its failure to tell the transferor about any ‘measures’ it was proposing to take; and (2) in any other case, the transferee will be jointly and severally liable with the transferor.
· A buyer will therefore want another indemnity in the transfer agreement to protect itself against this joint liability.

Question 45

· In the context of outsourcing, TUPE may be relevant in three ways:

Answer 45

• It may apply on the initial outsourcing; and/or
• It may apply on a change of supplier or service provider; and/or
• It may apply on the return of a service provision in-house

Question 46

What happens to occupationsational pension schemes under TUPE?

Answer 46

· On a TUPE transfer, an employee’s rights to pension benefits under an occupational pension scheme do NOT transfer across – see Regulation 10 of TUPE. However, the transferee will be under an obligation to provide a certain level of replacement access to pensions to the transferring employees.

Question 47

· Where the transferor provides a final salary (defined benefit) scheme, the employees are automatically eligible and the transferee must make contributions to:

Answer 47

• a final salary scheme; OR
• a money purchase scheme (whether occupational or personal)
  · with minimum statutory levels of contribution/benefit.
• Where the transferor provides a money purchase (defined contribution) scheme the employees will only be eligible for the above protection if the transferor was obliged to make employer contributions.
• Minimum levels of contribution: Two options for the transferee from 6 April 2014:
• Match the employee’s contributions (maximum of 6%);
• OR Match the transferor’s contributions (usually lower than 6%, i.e. auto-enrolment is 3%)

Question 48

When does TUPE apply to outsourcing?

Answer 48

· The transfer provisions of TUPE apply where there is a ‘service provision change’ (Reg. 3(1) (b)).

Question 49

When does a service provision change occur?

Answer 49

· A ‘service provision change’ occurs where a company ‘outsources’ part of its business to a third party:
- examples of ‘outsourcing’ include appointing a third party to provide cleaning services or IT maintenance services

Question 50

• ‘Service provision change’ triggers

Answer 50

· A service provision change can occur (and TUPE will apply):
* when the services are initially outsourced to a contractor (Reg 3(1)(b)(i));
* when the company appoints a new contractor in place of the initial contractor (Reg 3(1)(b)(ii)); or
* where the services are brought back in-house (‘insourced’) by the company (Reg 3(1)(b)(iii)),
- provided that the customer intends that the activities are to be carried out on more than a short-term basis
· However, a TUPE transfer will only occur if before the change there is an ‘organised grouping of employees’ which has as its principal purpose the carrying on of activities for the customer
· SO the two questions to ask are (1) is there a service provision change?
· And (2) is there an organised grouping of employees? - if the answer to both questions is ‘yes’, then there will be a TUPE transfer
- Note: The service provision change trigger does not apply to activities that consist wholly or mainly of the supply of goods.

Question 51

Which employees are automatically transferred under TUPE when outsourcing?

Answer 51

· On an initial outsourcing, if TUPE applies, the customer’s employees who are wholly or mainly assigned to the service being outsourced automatically transfer to the supplier.

· On a change of supplier, employees wholly or mainly assigned to the outsourced service transfer from the existing supplier to the new supplier.
· Where the outsourcing terminates and the customer brings the services back in-house, the employees of the supplier who are wholly or mainly assigned to the outsourced service transfer to the customer.

Question 52

· There is no definition of when an employee will be wholly or mainly assigned to the outsourced services. It is relevant to consider both:

Answer 52

• The amount of time an employee spends on the services and the employee’s importance to those services
• Other factors, such as the employee’s contractual duties and where the employee’s costs have been allocated within the business

Question 53

Can you contract out of tupe?

Answer 53

· It is not possible to contract out of TUPE but it is common in outsourcing contracts for the financial liabilities to be apportioned between the customer and supplier.

Question 54

TUPE and Self-employed contractors?

Answer 54

• TUPE only applies to employees – if self-employed contractors are to transfer to work in an outsourcing, their contracts will have to be assigned or novated to the supplier – or the supplier will have to enter into new contracts with them.**

Question 55

TUPE and Secondment?

Answer 55

• One other point to consider is whether a temporary secondment of employees from the customer to the supplier could be used to help at the start of its operations – without triggering some of the TUPE complications outlined above.

Question 56

Secondment?

Answer 56

· A secondment takes place when an employee (or group of employees) is temporarily assigned to work for a different organisation (the ‘host’).
· The idea behind a secondment is that the secondee remains employed by the original employer during the secondment - this is important to ensure that the host does not take on employer obligations towards the secondee.
· SO to ensure that this is the case, the original employer should continue to have overall control of the secondee (for example, conducting any pay reviews or disciplinary processes).

Question 57

Secondment issues?

Answer 57

· Employment Contract
- The secondee will remain bound by its employment contract with the original employer – there may be a secondment letter between employer and secondee, together with a secondment agreement between the employer and the host OR there could be a tripartite secondment agreement between all three parties.
· Payment
- The employer will continue to pay the secondee’s wages (and provide their benefits, including access to pensions) – the host will then normally pay a secondment fee to the employer.
* Note: If the work done by the secondee(s) could amount to a part of a business, then the secondment might amount to a TUPE transfer. Secondment is therefore most appropriate where the secondee still clearly has a job to return to with the employer and the work for the host has a clear, limited time frame.

Question 58

What is an occupational pension scheme?

Answer 58

· An occupational pension scheme is a scheme set up and operated by an employer under a trust arrangement in order to provide benefits for employees on retirement or death.

Question 59

What are the two main types of occupational schemes?

Answer 59

• defined contribution (DC) schemes
• and defined benefit (DB) schemes.

Question 60

What is a defined pension scheme?

Answer 60

· A defined contribution scheme is also known as a money purchase scheme. The employer will agree in advance the level of contributions it will make on behalf of the employees who join the scheme, and its liability will be fixed to this amount. This is usually expressed as a percentage of each member employee’s annual salary. The employees are required to make contributions as well, set at a fixed percentage of salary. Defined contribution schemes are often cheaper for an employer to provide and give the employer greater certainty as to its pension costs.

Question 61

What is a defined benefit scheme?

Answer 61

· A defined benefit scheme may also be known as a final salary scheme. The aim of a defined benefit scheme is to provide a fixed percentage of the employee’s final salary as a pension on their retirement. The relevant percentage will be dependent upon the number of years’ service whilst in the scheme. The employees are often required to contribute to the scheme at a fixed percentage of salary.
· The funding of defined benefit schemes is far more uncertain for the employer than a defined contribution scheme.

Question 62

· Occupational pension schemes are structured using a trust to hold the pension assets, so the key parties to an occupational scheme are:

Answer 62

• The Employing Company/Companies that sponsor and contribute to the scheme - and have responsibility for funding a DB scheme
• The Trustee(s) of the scheme who safeguard the pension assets and manage funding/investment requirements
• The Members of the scheme who pay into the scheme and receive pension benefits
  · Some occupational schemes will have a single sponsoring employer; but in a corporate group, a pension scheme is likely to be a ‘multi-employer’ scheme, providing pensions for employees from a number of companies within the group.
  · Many corporate groups have both DB and DC schemes for their employees: many defined benefit schemes have been closed to new members and/or to future accruals by the existing members (which means that the members will not be able to build up further rights to an additional proportion of their salary on retirement) - new occupational schemes will generally be defined contribution schemes.

Question 63

Personal pension schemes?

Answer 63

· A personal pension scheme is a contractual arrangement between an individual member and an authorised provider, such as an insurance company. Contributions can be made by the member alone or the member’s employer may contribute on their behalf.
· All personal pensions work on a defined contribution basis
· A group personal pension scheme is where an employer arranges with an authorised provider for employees to set up personal pension schemes, with the employer making contributions on their behalf.

Question 64

Autoenrolment?

Answer 64

· The Pensions Act 2008 introduced new obligations on employers by requiring them to automatically enrol eligible employees into qualifying workplace pension arrangements.
· Under the auto-enrolment provisions, an employer is required to enrol each ‘eligible jobholder’ as an active member of a ‘qualifying scheme’ and to make certain minimum contributions to the scheme on the employee’s behalf.
· The employee will also be required to make contributions to his own scheme, which will be deducted from his salary. The employee will be able to opt out of the scheme but if he does so then the employer must automatically re-enrol him once every three years (and the employee may opt out again).

Question 65

· An eligible jobholder?

Answer 65

person aged between 22 and the state pension retirement age who works in the UK under a contract of employment and whose ‘qualifying earnings’ payable by the employer are more than £10,000 a year (as at 2022/23)

Question 66

Qualifying scheme?

Answer 66

can be an occupational or a personal pension scheme. It must be registered with HMRC.

Question 67

• Schemes associated with statutory obligations?

Answer 67

· National Employment Savings Trust (NEST)

Question 68

National Employment Savings Trust (NEST)?

Answer 68

· National Employment Savings Trust (NEST) is a government-run, defined contribution pension scheme – set up as a statutory trust based scheme to help employers comply with their auto-enrolment obligations (see next slide).
· Both employer and employee can make contributions into the scheme. If the employee leaves their job, they can take their pension pot with them to their next employment, where they can continue to make contributions to the same pension.
· NEST aims to keep charges for managing its members’ pensions low.
· Stakeholder pension schemes allow for flexible contributions by employees and they are targeted at individuals with moderate incomes: these are no longer common since a statutory requirement for employers to provide them ceased in 2012.

Question 69

• Issues relating to defined benefit schemes?

Answer 69

· Defined benefit schemes often require additional finance from the sponsoring employer(s), but if an employer becomes insolvent and cannot meet its funding obligations, the scheme will instead ‘fall in’ to the Pension Protection Fund (a government created scheme), which will partially cover the pension obligations. In order to protect against this, defined benefit schemes are subject to additional statutory provisions.
· The key legislative source is the Pensions Act 2004 (‘2004 Act’), amended by the Pension Schemes Act 2021.
· There are also important provisions in the Pensions Act 1995 (‘1995 Act’)
· The oversight of these statutory protections (and of the funding requirements on the employer) is vested in: The Pensions Regulator (TPR)

Question 70

Statutory Basis for Funding DB Schemes

Answer 70

· Pursuant to section 222(1) of the Pensions Act 2004:
- “Every [DB] scheme is subject to a requirement….. that it must have sufficient and appropriate assets to cover its technical provisions [i.e. the amount required to provide for its liabilities, based on actuarial calculations]”
- At least every three years, the scheme’s actuary must conduct a ‘funding valuation’ - used to inform a ‘schedule of contributions’ from the sponsoring employer(s) and a ‘recovery play’ if the scheme is in deficit.
- If the sponsoring employer’s solvency is in doubt (it has a ‘weak employer covenant’), it may be required to pay more into the scheme through its recovery plan.

Question 71

· There are additional statutory protections for defined benefit schemes:

Answer 71

• Notifications to the Pensions Regulator are required on the occurrence of significant ‘notifiable events’ that might have an impact on a DB scheme
• Where there has been some act/failure to act that has materially damaged the scheme (‘moral hazard’), the Pensions Regulator has the power to issue a ‘Contribution Notice’ (CN) on certain parties.
• Funding of the scheme is required when an employer ceases to participate in a DB scheme (known as a ‘s. 75 Debt’).
• Where there is otherwise an under-resourcing of the scheme, the Pensions Regulator has the power to issue a ‘Financial Support Direction’ (FSD) on certain parties
• Contribution Notices and Financial Support Directions can potentially be served on any of the wholly owned companies in a corporate group, even if they are not themselves sponsoring employers of the DB pension scheme in question.
• TPR operates a clearance procedure under which it can be asked to confirm in advance that it will not use its powers to issue CNs or FSDs in relation to a particular DB Scheme and a particular event (such as a proposed transaction).

Question 72

· As part of the due diligence process, it is essential to obtain full details of the pension arrangements for the employees of the target business or company. This will generally include:

Answer 72

• details of, and copy of the governing documentation relating to, each pension scheme;
• confirmation that each scheme is registered with HMRC and whether any defined benefit scheme is open or closed to future accruals;confirmation that the target has complied with its auto-enrolment obligations;
• confirmation that all the contributions to each scheme are up to date;
• the identities of the participating employers and the names of the current trustees of each scheme;
• copies of the latest trustee annual reports and audited accounts for each scheme; full details of any claims against any of the trustees of any of the schemes;
• copies of all contracting out certificates (This is where a pension scheme has contracted out of the additional State pension);
• confirmation that any defined benefit scheme is sufficiently funded, with copies of the latest statutory funding documentation; and
• details of any contributions which the target has agreed to pay to personal pension schemes.

Question 73

· The key due diligence issues for investigation for defined benefit schemes?

Answer 73

• The funding level of the scheme – and in particular any deficit
• The likely impact of the transaction on the funding obligations of the target company to the scheme.
• Any notifications of the transaction required to be made to the Pensions Regulator.
• Any risk of a Contribution Notice or Financial Support Direction being served on the target company (NB: This risk might arise even if the target itself is not an employer in the scheme – the parties might wish to guard against any risk by seeking a clearance from TPR).

Question 74

The key due diligence issues for investigation for defined contribution schemes?

Answer 74

• Cost to employer of the scheme – monthly contributions.Whether the target is up to date with auto-enrolment obligations.

Question 75

The key due diligence issues for investigation for any occupational scheme on an asset sale?

Answer 75

• Obligations that might transfer across to the buyer under TUPE.
• These would comprise ‘Beckmann’ liabilities relating to benefits other than old age, invalidity or survivors (for example, a right to enhanced early retirement on redundancy).

Question 76

• Effect of a share sale on pension arrangements

Answer 76

· Where the target operates a single employer occupational pension scheme (operated for the benefit of the employees of Target only)
· Target >No change. Occupational pension scheme remains with target after completion
· Where the target participates in a group occupational pension scheme (operated for the benefit of the employees of a group of companies)
· Seller group > Target will leave seller group’s pension scheme on completion so employees will no longer participate in the scheme> Employment terms do not change so Target must provide same pension benefits to employees> If the scheme is a final salary scheme and it is in deficit (assets less than liabilities) at the time Target leaves the group, then under s75 Pensions Act 1995, Target may be liable for a proportion of the deficit (a s. 75 liability, as already referenced).
· The buyer will seek warranties or indemnities from the seller in relation to such liability

Question 77

• Effect of an asset sale on pension arrangements

Answer 77

· Where the seller operates an occupational pension scheme (OPS)
· Employees TUPE across
· Seller> OPS remains with seller. The OPS remains with the seller. Enhanced benefits (‘Beckmann’ liabilities) may pass to the buyer, so the buyer may seek an indemnity from the seller. If the OPS is a defined benefit scheme in deficit, the seller may end up with a s. 75 liability to the scheme.
· Buyer> Buyer must provide a scheme to employees who were member of OPS pre sale but is not obliged to match seller’s scheme and buyer can decide on the type of scheme or buyer can agree to take on seller’s OPS
· Where the seller operates a personal pension scheme (PPS)
· Seller>Employees AND rights and liabilities under PPS TUPE across>Buyer

Question 78

• Structure of a defined benefit (DB) pension scheme
  · The key players in a DB Scheme are:

Answer 78

• The Employing Company/Companies that participate in the DB Scheme and have responsibility for funding.
• The Trustee(s) of the DB Scheme who safeguard the pension assets and manage funding/investment requirements.
• The Members of the DB Scheme who pay into the scheme and receive pension benefits.

Question 79

• Risks associated with defined benefit schemes

Answer 79

· A defined benefit scheme effectively “guarantees” a particular level of pension benefits for the members of the scheme whether or not the assets within the scheme are sufficient to cover the cost of these benefits.
· Dependent on the longevity of scheme members and the investment performance of scheme assets, this may mean that the employer ends up having to make large contributions to make up a shortfall – or ‘deficit’ – in funds within the scheme.
· If the employer is unable to meet its debts, the scheme will ‘fall in’ to the Pension Protection Fund (PPF) – a Government-created scheme (funded by levies from DB Schemes and their sponsoring employers) that partially compensates DB Scheme members for failure to pay their pensions.

Question 80

· The statutory protections overseen by the Pensions Regulator in relation to defined benefit schemes can be broken down into the following four main areas:

Answer 80

• Notifications to the Pensions Regulator are required on the occurrence of significant ‘notifiable events’ that might have an impact on a DB scheme.
• Where there has been some act/failure to act that has materially damaged the scheme (‘moral hazard’), the Pensions Regulator has the power to issue a ‘Contribution Notice’ on certain parties.
• Funding of the scheme is required when an employer ceases to participate in a DB scheme (known as a ‘s. 75 Debt’).
• Where there is otherwise an under-resourcing of the scheme, the Pensions Regulator has the power to issue a ‘Financial Support Direction’ on certain parties.

Question 81

· The duty to notify (which is in s. 69 of the 2004 Act) requires notice to the Pensions Regulator of:

Answer 81

• Notifiable Events in respect of DB Schemes (scheme-related events).
• In this case, duty to notify is on the trustee(s) of the DB Scheme – these events would include circumstances where the trustees agree to postpone a s. 75 payment.
• Notifiable Events in respect of employers, in relation to their DB Schemes (employer-related events).
• In this case, duty to notify is on the employer – these events include the transaction-linked events set out below.
  · Note: The stated purpose of notifying these events to the Pensions Regulator is to reduce the risk of circumstances that may lead to compensation being payable from the PPF – in other words, to give advance warning of issues with DB Schemes.

Question 82

· The following notification events relate to transactions involving a sponsoring employer of a defined benefit scheme:

Answer 82

• Employer related events
• Decision by the controlling (or main) employer in relation to a scheme to relinquish control of a subsidiary that participates in the scheme/actually relinquishing such control. This would catch a sale of a subsidiary that participates in a multi-employer scheme.
• Decision in principle by a participating employer to sell a “material proportion” of its business or assets (Note: This has not yet come into force but it is expected to be in force in the first half of 2023). A material proportion is defined as more than 25% of annual business revenue/gross value of assets SO this would clearly catch a sale of a business. A decision in principle is a decision taken even before negotiations with another party are commenced.
• Decision in principle by a participating employer to grant or extend a “relevant security” over its assets, where this would result in the secured creditor ranking in priority above the scheme (Note: This has not yet come into force but it is expected to be in force in the first half of 2023). A relevant security is security granted/extended over more than 25%of the employer’s consolidated revenue or gross assets (and includes floating charges and security granted by subsidiaries).
• These events do not have to be notified if the relevant DB Scheme is funded above a certain level (referred to as the PPF ‘buy out’ level) and the employer is adhering to its scheduled contributions.

Question 83

In what time should events be notified to the pensions regulator (TPR)?

Answer 83

· The initial notification must be given to TPR “as soon as reasonably practicable” – TPR gives the example of an event that arises on a Sunday, which must be notified on Monday.

Question 84

· Under Section 69A of the 2004 Act (see below), the employer events shown above will also require more detailed notifications to be given to TPR once the main terms of the transactions referenced have been agreed, as follows:

Answer 84

• A further notice, accompanied by a ‘statement of intent’ (also provided to the trustees), setting out in particular;
• the main terms proposed,
• any adverse effects on the employer’s ability to meet its legal obligations to the scheme,
• any steps taken to mitigate those adverse effects,
• any communication with the trustees about the event.
• Subsequent notifications of any ‘material change’ to the event or its effects (including any change to the terms or to the proposed mitigations).
  · Note: Breaches of s. 69A will be subject to a financial penalty of up to £1 million and also could give rise to a criminal offence of providing false or misleading information to TPR.
  · NB: S. 69A has not yet come into force, although it is expected to in the first part of 2023.

Question 85

• Triggers for s. 75 Debt

Answer 85

· An ‘employment cessation event’ giving rise to a s. 75 Debt may arise on both:
- the sale of a company that is a participant in a multi employer DB Scheme; and
- the sale of a business by a company that is a participant in a multi employer DB Scheme – because all the employees will automatically transfer with the business.
· Note: In each case, the debt arises in the employing company so, on a sale of that company, the issue is a primary concern for the buyer – whereas on a sale of the business, the issue remains a primary concern for the seller.
· A S. 75 Debt only arises if the DB Scheme is in deficit and the employing company only has to pay the share of the shortfall that is referable to its own employees – but the debt is calculated on a basis which requires coverage of the full current cost of providing the pensions promised to members, so can be substantial.

Question 86

• Mitigating a S. 75 Debt

Answer 86

· There are statutory mechanisms for managing or postponing liability for a S. 75 Debt:

Question 87

· The two most commonly used mechanisms for mitigating s.75 debt are:

Answer 87

• Flexible apportionment arrangement - Allows a departing employer to apportion its share of the scheme liabilities to the remaining employers, providing set conditions are met (including consent from the trustees and all the employers involved).
• Deferred debt arrangement - Allows the departing employer to be treated as if no employment-cessation event has arisen and they are still an employer of an active scheme member – requires the trustees to agree that the scheme is not in a winding-up situation and is unlikely to enter such a situation in the next 12 months.
• A flexible apportionment arrangement or deferred debt arrangement must be notified to TPR as a scheme notifiable event– as must (in most cases) any other action by the trustees that will result in a S. 75 Debt not being paid in full – and such and arrangement will only be agreed by the trustees if they consider that it will not put the scheme at risk.

Question 88

• Penalties for Preventing Recovery of a s. 75 Debt

Answer 88

· Taking steps to avoid a s. 75 Debt outside the authorised routes may attract a range of penalties.
· Penalties apply if, without ‘reasonable excuse’, a person acts/fails to act/engages in a course of conduct AND intended this to have such an effect that:
- Prevents recovery of a s. 75 Debt;
- Prevents a s. 75 Debt becoming due;
- Compromises/settles a s. 75 Debt; and/or
- Reduces the amount of a s. 75 Debt.
· Note: “A person” could include trustees of the DB Scheme, directors of the employing company, advisers etc – it has a wide scope.
· Criminal Penalty – this is a criminal offence that can lead to a fine and/or a prison term of up to 7 years.
· Financial Penalty – TPR can instead impose a financial penalty of up to £1 million.
· TPR can also issue a Contribution Notice, if the relevant ‘person’ is an employer or a person connected with or associated with an employer (see next section of the course materials).

Question 89

what is a Contribution Notice?

Answer 89

· Contribution Notice (ss. 38-42B 2004 Act) = A financial obligation requiring the payment of a sum of money to a DB Scheme within a certain period of time.
· A warning notice that TPR is considering the making of a Contribution Notice (CN) must be issued within six years of the trigger event for the notice.

Question 90

• Grounds for issuing Contribution Notices

Answer 90

· There are four possible grounds (or trigger events) for The Pensions Regulator issuing a Contribution Notice.
· The grounds arise where an act or deliberate failure to act falls within one of the following tests:
- The main purpose test: Its main purpose, or one of its main purposes, was to prevent the recovery of all or part of an employer debt, or prevent the debt coming due, or compromise/settle/reduce that debt.
- The employer insolvency test: Immediately after it, the scheme’s assets were less than its liabilities and, had a S. 75 Debt fallen due, the act/failure to act would have materially reduced the amount that could be recovered had the employer become insolvent.
- The material detriment test: It had a material detrimental effect on the likelihood of accrued scheme benefits being received.
- The employer resources test: It reduced the value of the employer’s resources and that reduction was material relative to the scheme’s estimated S. 75 Debt.
· A s. 75 Debt is calculated on a basis which requires coverage of the full current cost of providing the pensions promised to members SO is an expensive basis of calculation.

Question 91

· The recipient, or ‘target’, of a Contribution Notice must be:

Answer 91

• A participating employer in relation to the DB Scheme at some time in the period between the trigger event and the issue of a warning notice (the ‘relevant period’ for these purposes);
  · OR
• ‘Connected’ with the participating company – meaning that they were a director/shadow director at some time during the relevant period;
  · OR
  · ‘Associated’ with the participating company, or with any director/shadow director, at any time during the relevant period.
• ‘Associates’ include (1) various close relatives (including spouses) of individuals and (2) companies that are in common control (through ownership of one third or more of the controlling/voting shares).
  · Note: The target of a Contribution Notice must ALSO have been a party to, or have knowingly assisted in, the trigger event.

Question 92

• Application of “Connected”/”Associated” Definitions

Answer 92

· Key implications of the definitions include:
- All wholly owned companies in a group are associated with each other;
- A parent entity will be associated with all of the companies that it controls; and
- Individual directors will be connected with the companies where they are on the board – and their close relatives will also be drawn in as their associates.

Question 93

• Protections against Contribution Notices

Answer 93

· In all cases other than the main purpose test, a statutory defence is available where a person gave due consideration to the extent to which the act/failure to act might materially reduce the amount of the S. 75 Debt and took all reasonable steps to eliminate or minimise the potential for it to have such an effect.
· In all four cases, TPR may also only issue a Contribution Notice if it believes that it is reasonable to do so.
· Note: The legislation sets out a list of factors that TPR may take in account when considering ‘reasonableness’.

Question 94

· If a person fails to comply with a Contribution Notice by the due date, this could lead to:

Answer 94

• Criminal Penalty – this is a criminal offence that can lead to a fine.
• Financial Penalty – TPR can instead impose a financial penalty of up to £1 million.
  · Note: These penalties are in addition to a new criminal offence of ‘conduct risking accrued scheme benefits’ – which could lead to a fine and/or a prison sentence of up to 7 years.

Question 95

• What is a Financial Support Direction?

Answer 95

· Financial Support Direction (ss. 43-51 2004 Act) = A requirement to put in place financial support to maintain the solvency of a DB Scheme.
· Any financial support must generally remain in place while the scheme is in existence – it could include (for example) the provision of financial resources to the scheme or a guarantee from members of a group.
· Note: TPR is again required to issue a warning notice where they are considering the issue of a Financial Support Direction (FSD).

Question 96

· The recipient, or ‘target’, of an FSD must be:

Answer 96

· A participating employer in relation to the DB Scheme at any time in the period of 24 months ending on the date TPR issues a warning notice in relation to the FSD (the ‘relevant period’ for these purposes) or
· ‘Connected’ with the participating company during the relevant period or
· ‘Associated’ with the participating company or with any director/shadow director at any time during the relevant period.
· The definitions of connected and associated are the same as for CNs.
· Note: It must also be reasonable to impose the requirements of the FSD on the target.

Question 97

• Grounds for issuing Financial Support Directions

Answer 97

· An FSD may be issued where the employer is EITHER:
- A ‘service company’ – in other words, it is a company in a group of companies and its turnover is solely/principally derived from amounts charged for providing the services of its employees to other group companies or
- ‘Insufficiently resourced’ – in other words, the value of its resources is less than 50% of the estimated S. 75 Debt in relation to the scheme, and either:
- The value of resources of a connected/associated person – when added to the resources of the employer – is at least equal to 50% of that estimated debt or;
- The aggregate value of the resources of two or more connected/associated persons (which are also connected/associated with each other) - when added to the resources of the employer – is at least equal to 50% of that estimated debt.
* Note: These grounds are “no-fault” –there is no requirement for any action / failure to act or any bad faith.

Question 98

• Consequences of failing to comply with Financial Support Directions

Answer 98

· If a target person fails to comply with the terms of an FSD, TPR may issue a “non-compliance contribution notice” requiring payment of a specified sum to the scheme – so long as it considers it reasonable to do so.
· Non-compliance with such a contribution notice would attract the relevant penalties already set out in this section.

Question 99

· TPR operates a clearance procedure under which it can be asked to confirm in advance that it will not use its powers to issue:

Answer 99

• Contribution Notices; and/or
• Financial Support Directions,
  · in relation to a particular DB Scheme and a particular event (such as a proposed transaction).
  · A clearance statement is binding on TPR unless the facts turn out to be materially different from those presented to it.

Question 100

Why may a potential buyer want to use a clearance scheme?

Answer 100

· A potential buyer may wish to use the clearance procedure to ensure certainty as to the potential liabilities that it could face resulting from a particular transaction involving a DB Scheme BUT TPR has said that clearance is only appropriate for serious events that may weaken a pension scheme, referred to in its guidance as ‘Class A events’. (NB: Apportionment arrangements for s. 75 Debts will generally be a Class A event).

Question 101

Why would trustees to a DB scheme enerally want to be party to any clearance application submitted to TPR?

Answer 101

so parties to a transaction should consider involving them in early discussions.

Question 102

Your client (‘Company A’) is proposing to enter into a 50/50 owned joint venture company (the ‘JV Co’) with one other party (‘Company B’). Company A is transferring a tutoring business to the JV Co, including some employees and some self-employed consultants (the ‘Business Personnel’). In addition, Company A has agreed to provide the JV Co with ongoing support to assist with its accounts and finance function: this will involve a number of Company A employees who have not previously worked with the transferring business and who will also continue to provide accounts and finance support to Company A itself (the ‘Other Personnel’).

What is the best advice to give to your client in relation to the Company A personnel involved (bearing in mind, among other things, the provisions of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE’))?

Not all of the Business Personnel will transfer across to the JV Co under TUPE so a contractual solution will be needed for those who do not; the services of the Other Personnel should be provided to the JV Co under a services agreement.

All of the Business Personnel will transfer across to the JV Co under TUPE; the Other Personnel should be seconded to the JV Co to provide initial support.

All of the Business Personnel will transfer across to the JV Co under TUPE; the services of the Other Personnel should be provided to the JV Co under a services agreement.

Not all of the Business Personnel will transfer across to the JV Co under TUPE so a contractual solution will be needed for those who do not; the Other Personnel should be seconded to the JV Co to provide initial support.

Answer 102

Not all of the Business Personnel will transfer across to the JV Co under TUPE so a contractual solution will be needed for those who do not; the services of the Other Personnel should be provided to the JV Co under a services agreement.

This answer is correct. Some of the Business Personnel are consultants, so they would not transfer across under TUPE (which is also why Answer A is incorrect): the Other Personnel will not be working for the JV Co exclusively, so a services agreement would be most appropriate here (not a secondment: this is why Answer C is incorrect). See Joint Ventures: TUPE and Related Employee Issues.

Question 103

Your client (‘Company A’) is proposing to set up a 50/50 joint venture company (the ‘JV Co’) with one other party (‘Company B’). Company A and Company B will each be transferring a subsidiary company to the JV Co when it is set up. The subsidiary that Company A is transferring to the JV Co (‘Sub A’) is a member of a multi-employer defined benefit pension scheme (the ‘DB Scheme’). Sub A will no longer qualify as an employer under the DB Scheme once it has been transferred to the JV Co, so it will have to leave the scheme.

What is the best advice to give to your client in relation to the debt that might arise in relation to the DB Scheme under s. 75 of the Pensions Act 1995 (a ‘s. 75 Debt’) when Sub A leaves the scheme?

Sub A will be liable for a s. 75 Debt if the DB Scheme is in deficit, but it might be possible to come to an arrangement to defer the debt if the trustees of the DB Scheme agree.

If Sub A transfers its business to the JV Co instead, there would be no risk of a s. 75 Debt arising.

If Sub A transfers its business to the JV Co instead, a s. 75 Debt might also arise, but it would transfer to the JV Co under the provisions of the Transfer of Undertakings (Protection of Employment) Regulations 2006.

Sub A will be liable for a s. 75 Debt payment to the trustees of the DB Scheme to cover any risk that the assets of the DB Scheme might decrease in future, even if the DB Scheme is not in deficit at the time that Sub A leaves the scheme.

Answer 103

Sub A will be liable for a s. 75 Debt if the DB Scheme is in deficit, but it might be possible to come to an arrangement to defer the debt if the trustees of the DB Scheme agree.

This answer is correct. There are some statutory arrangements that could be reached with the trustees of the DB Scheme to defer a s. 75 Debt. Answer A is incorrect because the s. 75 Debt provisions would only apply if the DB Scheme is in deficit, Answers B and D are incorrect because a s. 75 Debt could also arise if Sub A transfers its business to the JV Co and has no employees left in the DB Scheme, but it would not transfer across to the JV Co. See Pension Schemes: Details of Defined Benefit Schemes.

Question 104

Your client (‘Company A’) is proposing to enter into a joint venture with one other party (‘Company B’). The joint venture would be set up as a limited company (the ‘JV Co’). Each of Company A and Company B is transferring a business to the JV Co when it is set up: this will involve employees of the Company A business (the ‘A Employees’) and employees of the Company B business (the ‘B Employees’) transferring to the JV Co pursuant to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE’). The A Employees work on a shift pattern from 8 to 4 or from 12 to 8, whereas the B Employees work on a shift pattern of 12 midnight to 12 noon or from 12 noon to 12 midnight. The JV Co would like to change the terms of employment of the A Employees to match those of the B Employees, with a consequent increase in the amount that they are paid.

What is the best advice to give to your client in relation to the changes that the JV Co is planning?

As the overall effect of the changes would be positive for the A Employees, the JV Co could impose the changes unilaterally and the changes would not cause a problem under TUPE.

In order to avoid problems with TUPE, the JV Co should ask Company A to agree the changes with the A Employees before they transfer to the JV Co.

It is never possible to make any changes to the terms and conditions of employees that have transferred under TUPE, even with the consent of the employees.

If the terms of employment of the A Employees already allow for such changes in the shift pattern at the employer’s discretion, the JV Co could make the change without there being a problem under TUPE.

Answer 104

If the terms of employment of the A Employees already allow for such changes in the shift pattern at the employer’s discretion, the JV Co could make the change without there being a problem under TUPE.

This answer is correct. This is an exception to the rule that changes to the terms and conditions of employees that have transferred under TUPE will be void (and the existence of such exemptions is the reason that Answer B is incorrect). Answer A is incorrect because changes cannot be imposed unilaterally without consent from employees, even if TUPE does not apply and Answer C is incorrect because the rules about amending terms and conditions also apply to changes made prior to a TUPE transfer if the reason for making the changes is the transfer. See Employees: TUPE on an Asset Sale.