Business Transfer & Changes

In the context of the transfer of undertaking under collective redundancy legislation or large-scale redundancy, certain consultations are required by general employment legislation.

The consultation regulations require employers to consult with members in prescriptive terms regarding most major changes to the scheme; the employer must give specified written notice to all affected members and representatives 60 days in advance before a listed change, as defined, is to be made. This includes details of the scheme’s likely effect and timescale for implementation.

The information should be sufficiently clear and comprehensive to enable members and their representatives to consider the proposed change. Changes subject to the legislation include closing the scheme to new members, increasing the normal pension age, changing some or all benefits from defined benefit to money purchase, and changes in contributions required from members.

Consultations are to be taken out in spite of cooperation, taking into account the interests of both sides. The employers must take into account representations made. The regulator must impose civil fines of up to €5,000 or €50,000 for a corporate body for a failure to comply with the obligations.

The trustees have an overriding obligation to act in the best interest of the beneficiaries in accordance with the terms of the trust deed and their legal obligations. Where the power of amendment is vested in the trustees or where they have to consent to and exercised by the employer, they must exercise their discretion in good faith. The scheme documentation may give the trustees the preeminent decision in resolving determining the matter.

Where an employment contract is ended, the employee will generally become a former employee and will become a deferred member. The trustees will be obliged to give him details of his options under the transfer/preservation rules.

If an employee establishes that he has been unfairly dismissed, he may be awarded compensation based on weekly pay subject to a statutory ceiling, but also compensatory reward. Orders of reinstatement or reengagement may be made. Compensation may include the loss of pension rights. Actuarial evidence may be required in respect of the quantification of rights. The position must be measured against the employee must mitigate and seek alternative employment in the usual way. It may be difficult to quantify the extent or fact of the loss.

There is a statutory maximum compensatory award which may limit the extent of pension loss available.

Similar principles apply in respect of breach of contract cases/wrongful dismissal. The statutory caps do not apply, so the issues may arise more pointedly in cases of high-level executives with significant contractual protections who are wrongfully dismissed in breach of contract.

Some trustees provide that the employee is not allowed to compensate employees for the loss of pension rights on termination of employment; the course of taking different users to whether these constitute unfair contract terms. They are likely to affect the contract of employment if they are contained in the trust deed to which the employee is not a party. Alternatively, if incorporated, they may fail the test of reasonableness in the unfair contract terms act.

On the acquisition of sales, the underlying pension scheme is not affected per se as the company continues in being. However, the purchase of the business or undertaking, there is no continuity and there is a change in the identity of the employer and no continuity. The transfer of undertaking, protection of employment [TUPE regulations] provide for the transfer of employment rights.

Prior to 2005, the TUPE regulations excluded so much of the contract of employment or collective agreement as relates to an occupational pension scheme from automatic transfer. This broadly reflects the continuing position in the Republic of Ireland.

As of April 2005, the Pensions Act 2004 amended the position in the United Kingdom. The transferee employer must offer transferee employees, membership of the transferee’s existing occupational defined contribution or defined benefit pension scheme, or stakeholder scheme and make matching contributions of up to six percent of basic employment pay.

An alternative is membership of an occupational defined pension scheme which satisfies the reference scheme test for contracting out. The third alternative is membership of an occupational defined benefit scheme which provides benefits the value of which is equal to not less than six percent of the employee’s pensionable pay for each year of employment together with the total amount of employee’s contributions and by which employees are not required to make contributions in excess of six percent of their pensionable pay.

There are prior consultation, information, and consultation obligations to which both transferor and transferee are liable. This will include proposed changes in respect of the pension. Although it does not need to consult about the transferee’s proposals, it is likely to have to give information in relation to them.

Issues may arise in relation to maternity adoption and parental absence in the context of discrimination. Some benefits will be suspended, maybe suspended when certain rights are enjoyed. However, complex issues may arise in relation to antidiscrimination legislation.

Remuneration is an exception to the requirement that an employee on maternity leave or benefit of terms and conditions. Complex issues arise in the EU level as to whether pension rights continue to accrue during parental maternity leave, etc.

Employer must allow employees where trustees time off to deal with their duties and to undergo relevant training. The amount must be reasonable having regard to the nature of their business and the effect of the employee’s absence. Employee is entitled to be paid during time off for this purpose.

There are special provisions for complaints to the employment tribunals for a breach of this obligation. The employee must not be victimized or subject to unfair dismissal or treatment by reason of the exercise of the rights.