Adams v Lancashire County Council

On a transfer of an undertaking, article 3(3)[A] of the Acquired Rights Directive broadly excludes occupational pension rights from the automatic transfer rule in article 3(1), including rights relating to future service. Article 3(3)[B] is narrower. It requires protection of accrued rights conferring immediate or prospective entitlement in respect of service before transfer. The two limbs are not coterminous. The Directive does not, merely because employment transfers, require a member state to make the transferee provide or fund a pension scheme for transferred employees. Domestic issues under the Transfer of Undertakings (Protection of Employment) Regulations 1981 need not be resolved where the Directive claim fails.

The appellants were part-time school catering employees of Lancashire County Council. Their employment transferred to BET Catering Services Ltd when BET took over the Council’s schools catering service. The appellants were excluded from BET’s comparable pension scheme because of their earnings.

Robert Walker J dismissed their application, holding that the Acquired Rights Directive did not require protection of pension rights arising from post-transfer service and that there was no need to construe the domestic regulations differently. The appeal concerned the proper interpretation of article 3(3), including whether its two limbs were coterminous, and whether any resulting obligation could have direct effect against the Council.

1. Disposition. Lord Justice Morritt delivered the judgment. Lord Justices Phillips and Leggatt agreed. The appeal was dismissed with costs, and leave to appeal to the House of Lords was refused.
2. Article 3(3)[B]. The words referring to rights conferring immediate or prospective entitlement concern accrued rights in respect of service before the transfer. The inclusion of former employees confirms that the provision cannot extend to rights based on future employment. It does not require protection of pension benefits attributable to future service with the transferee.
3. Article 3(3)[A]. This limb applies to all employees’ rights to old-age, invalidity and survivors’ benefits under the specified supplementary pension schemes. Unlike limb [B], it contains no limitation to accrued rights. Those rights are excluded altogether from the automatic transfer provisions in article 3(1). Limbs [A] and [B] therefore have different scopes.
4. Construction. Community legislation must be interpreted purposively, by considering its language versions, Community terminology, context, objectives and state of evolution. The Directive provides only partial harmonisation and does not establish a uniform level of protection. Its general purpose must therefore be applied through the wording and scheme of article 3. The reasoning in Abels 1985 ECR 469, Walden Engineering v Warrener (1993) IRLR 420 and Eidesund v Stavanger Catering A/S (1996) IRLR 684 supported that construction.
5. Consequences. No general obligation required an employer to establish and fund a pension scheme for its existing workforce. The Directive could not be read as imposing such an obligation for future benefits merely because employees had transferred. The arguments concerning Regulation 7 of TUPE and direct vertical effect consequently did not arise.

• Court of Appeal. The appeal was dismissed with costs. Leave to appeal to the House of Lords was refused: [1997] EWCA Civ 1699.
• High Court, Chancery Division. Robert Walker J dismissed the appellants’ application on 17 January 1996, answering the principal TUPE and Directive questions in the negative: [1996] ICR 935.