In the diappointing judgment in Frankling and Others v BPS Public Sector Limited, the Employment Appeal Tribunal has ruled that entitlement to enhanced redundancy benefits under Section 46 of the Whitley Council Agreement does not transfer under TUPE. This means that, where Trusts and other Health Service employers contract out services into the private sector, employees who are subsequently made redundant by their new employer in the private sector cannot claim the benefit of the enhanced redundancy provisions contained in Section 46. The effects of the Judgment will be felt throughout the public sector where similar enhanced redundancy provisions apply.
Whitley Council
Section 46 of the Whitley Council Agreement provides for two types of benefit. First, there is the premature payment of pension benefits from the date of redundancy up until normal retirement age. Ordinarily, these benefits would not become payable until the employee reached normal retirement age.
Section 46 also provides for the doubling of years of pensionable service, subject to a maximum of 10 added years. Entitlement to those benefits arises where employees with more than five years' service are made redundant at age 50 or over.
Regulation 7 (1) of TUPE excludes from transfer liabilities under or in connection with the contract of employment relating to an occupational pension scheme. However, Regulation 7 (2), in restricting the scope of Regulation 7 (1), means that any provisions of an occupational pension scheme which do not relate to benefits for old age, invalidity or survivors are not to be treated as a part of that pension scheme. This means that rights which do not relate to benefits for old age, invalidity or survivors do transfer and become enforceable against the new employer.
The Case
Mrs Frankling and her three colleagues worked in the payroll department of the Eastbourne Hospitals NHS Trust. The payroll department was contracted-out to BPS Public Sector Limited with effect from 1 September 1996 and it was accepted by all concerned that TUPE applied.
BPS then moved its payroll business to Glasgow and Mrs Frankling and her colleagues, who were all aged 50 or over with more than five years' service, were made redundant. BPS refused to pay them the benefits provided for under Section 46 of the Whitley Council Agreement.
Mrs Frankling and her colleagues, supported by UNISON, presented claims to the Employment Tribunal claiming damages for breach of contract. They claimed that their contracts of employment entitled them to the benefits provided for under Section 46 and that, even if the benefits were payable from the NHS Pension Scheme, entitlement still transferred because of Regulation 7 (2) of TUPE.
Tribunal Decision
The Employment Tribunal dismissed their applications finding that Regulation 7 (2) did not apply because the benefits provided for by Section 46 were, in its view, related to benefit for old age, invalidity or survivors. Mrs Frankling and her colleagues appealed to the Employment Appeal Tribunal.
The EAT dismissed the appeals on two grounds. It adopted a two stage analysis involving, first, investigation of the nature of the right as against the Trust before the TUPE transfer, and, secondly, the proper characterisation of benefits under Section 46 and whether or not Regulation 7 (2) applied.
Section 46 specifically provides that its terms were to be implemented by statutory instrument. The relevant Regulations are the NHS Superannuation Scheme Regulations 1995 and the NHS (Compensation for Premature Retirement) Regulations 1981.
According to the EAT, the employer's duty, under the Superannuation and Compensation Regulations, is to provide the necessary funds to the pension scheme to make the relevant payment to the employees. The pension scheme is then obliged to pay the benefits to the employees.
In other words, there is no contractual relationship between the employee and the employer for the payment of Section 46 benefit. Those benefits are not, therefore, rights or liabilities which arise under or in connection with the contract of employment and, quite apart from Regulation 7 of TUPE, do not transfer.
The Employment Appeal Tribunal then considered whether or not Section 46 benefits are within the scope of Regulation 7 (2) of TUPE. Mrs Frankling and her colleagues argued that entitlement to Section 46 benefits was triggered by a redundancy dismissal, and not by their age. As such, the benefits should not be treated as relating to old age, invalidity or survivors and should be covered by Regulation 7 (2).
Unfortunately, the EAT disagreed. It characterised Section 46 benefits as "benefits for old age" finding that the trigger event bringing about entitlement was irrelevant where the employees were effectively treated as having retired and their benefits were calculated by reference to age and years of service.
Implications
The decision is extremely disappointing and leaves a number of outstanding issues. In particular, as noted by the EAT, if benefits provided under Section 46 of Whitley are not covered by Regulation 7 (2), what type of benefits are? The answer may be that there is a restricted category of redundancy benefits payable in the civil service which might be within the scope of Regulation 7 (2), but this does seem an excessively restrictive interpretation of the way in which Regulation 7 (2) is intended to operate.
The trigger event giving rise to the entitlement is highly relevant in characterising the benefits. Mrs Frankling and her colleagues were made redundant. They did not retire.
Why Was it Wrong?
We take issue with the EAT's finding that the fact that Section 46 benefits were to be implemented by statutory instrument meant that there was no corresponding contractual right to those benefits. There is no reason why entitlements under a statutory instrument should not co-exist with enforceable contractual rights and this is plainly the intention of the redundancy provisions contained in Section 45 and Section 46.
Indeed, the NHS Pension Agency's own advice is that Section 46 benefits are part of an employee's terms and conditions of employment.
At the same time, the Secretary of State's involvement has to be called into question. Even if the Employment Appeal Tribunal's analysis that Section 46 entitlements are founded exclusively in statutory instrument is correct, the Acquired Rights Directive imposes an obligation on member states to ensure that rights and obligations arising from a contract of employment, except rights to old age, invalidity or survivors benefits, transfer.
If our analysis is correct and Section 46 benefits do fall within the scope of Regulation 7 (2), then it appears that the Secretary of State may well have failed to fulfil his obligation to ensure that, after a TUPE transfer, employees are still entitled to benefits under Section 46, which they would have received if they had been made redundant before the transfer.
Local Government
Similar provisions to these contained in Section 46 of the Whitley Agreement are to be found in local government and throughout the public sector. In local government, the position is complicated by the fact that entitlement to added years is only discretionary.
However, the judgment will potentially apply to all such arrangements, particularly in relation to the characterisation of the payments as benefits for old age, which are therefore outside the scope of Regulation 7 (2) of TUPE.
What Happens Next?
The EAT recognised that the case may well go further. Mrs Frankling and UNISON are considering an appeal to the Court of Appeal.
In the meantime, where employees are made redundant following a contracting out exercise in the Health Service, or indeed throughout the public sector, they may wish to register an objection to any refusal to pay Section 46, or equivalent, benefits. Such employees should not sign any documents requiring than to waive any entitlements to bring future claims. This should protect their position pending the outcome of any possible appeal by Mrs Frankling and her colleagues.
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