The Procter & Gamble Company v Svenska Cellulosa Aktiebolaget SCA & Anor

Under TUPE, a discretionary entitlement may still constitute a transferable right or obligation. The relevant question is the substance of the economic benefit, not its label or the domestic distinction between an expectation and an enforceable right.

A liability already substantively satisfied by the transferor, including through a vested deferred pension, does not transfer again so as to create duplicate liability. Only unsatisfied enhancements remained transferable. Benefits payable after normal retirement age are old-age benefits under regulation 10(2), even where a unitary pension began before that age.

The claimant sold its European tissue towel business to the defendants. Employees at the Manchester site transferred under TUPE and became deferred members of the claimant’s defined-benefit pension scheme.

The parties disputed whether early-retirement benefits transferred under TUPE and, if so, whether the transferred liability required an adjustment to the purchase price under Schedule 7.09 of the asset sale agreement. Three questions arose: whether the right to be considered for early-retirement benefits transferred; whether all early-retirement liabilities or only the lost enhancements transferred; and whether benefits payable after normal retirement age were excluded as old-age benefits.

1. The right to be considered for early-retirement benefits transferred under TUPE. Article 3(1) of the Directive and regulation 4 of TUPE were to be interpreted liberally and without importing domestic distinctions between a discretionary entitlement and a legally enforceable right. The discretion affected implementation, not the existence of a transferable right.

2. The transferred liability was limited to the enhancements. The employees’ accrued deferred pensions were vested interests in the pension fund and remained payable from that fund. They satisfied and discharged the employer’s contractual obligation in respect of the standard pension. The employer’s separate statutory and trust-based funding obligations were not liabilities owed to the employees under their contracts of employment and did not transfer so as to require double funding.

3. Alternatively, regulation 4(2)(a) and (b) should be read together so that rights and liabilities already substantially satisfied, performed or discharged by the transferor are not transferred again. The provision of deferred pensions was treated as an act of the transferor deemed to be an act of the transferee. TUPE requires substantive equivalence of economic benefit, rather than literal replication of every contractual provision.

4. Schedule 7.09 was construed commercially. Its purpose was to compensate the transferee for the real liability imposed by TUPE, not to provide a windfall. “Liabilities” therefore referred to SCA’s actual net liability in the real world, and only the value of the enhancements required calculation in the purchase-price adjustment.

5. Benefits payable after normal retirement age were old-age benefits within regulation 10(2), even where payments under a unitary pension began before normal retirement age. Beckmann and Martin concerned benefits triggered by redundancy or equivalent events and payable before normal retirement age; they did not require an “once an early-retirement benefit, always an early-retirement benefit” rule. No reference to the CJEU was necessary.

6. Question 1 was answered in SCA’s favour. Questions 2 and 3 were answered in P&G’s favour. Declarations, costs and other consequential matters were adjourned for a further hearing.