TUPE and pensions - The tricky issues - 2016

Siobhan Bishop: Hello and welcome to this Gowling WLG Webinar on TUPE and Pensions, the Tricky Issues. I am going to focus on redundancy and Beckmann issues today that arise out of a TUPE transfer. So, I am Siobhan Bishop from the Employment Labour and Equalities Team, and I am joined today by Jane Fielding, a Partner in our Team and also Liz Wood, a Director in the Combined Human Resources Team, both of whom have got an extensive amount of experience advising on the issues we are looking at today.

The presentation will last for approximately 35 minutes with some time for questions at the end and before we get started we will just go through a few housekeeping points. The Webinar player itself has a few simple controls. The most important are the volume adjuster and the full screen option which are in the bottom of the right hand corner of the player.  There are also some tabs along the top which you can click on to access details about today's speakers, the slides and also some downloads with more information. If you have a question at any time, you can ask this, simply click on to the 'Ask a Question' tab, type in your question and then click 'Submit'. We will try and answer as many questions as we can in the time we have got available today.

There is also a 'Poll' tab. You do not need to worry too much about that yet. There are a couple of points in the Webinar where polls will automatically flash up on your screen and we would really encourage you to take part in those at that time. And finally, if for any reason you cannot see the current slide, just click on the 'Slide' tab to get back to it. So today, we are going to look at the two issues, firstly collective redundancy on a TUPE transfer and then dealing in more detail with Beckmann issues. So first of all I am going to handover to Jane Fielding.

Jane Fielding:Thanks Siobhan. So I am going to talk about the two overlapping regimes where you have got a TUPE transfer and also collective redundancies that the incoming employer wants to make so, that is, where you are hitting the threshold for collective redundancy consultation. And often those two processes go hand in hand because, perhaps, a new contractor to deliver the service model that they have won the bid on the basis of needs to make some redundancies to make the contract work for them.

So, there are similar regimes in terms of information and consultation both for TUPE and collective redundancy consultation as we can see from the screen. There is an information obligation, consultation, and then you have got to do that process with representatives of the staff rather than directly with the staff themselves. So taking TUPE first, on every TUPE transfer, there is an obligation to inform the representatives and that is separate from the obligation to consult, which we will come on to. And you have to give that information long enough before the TUPE transfer to enable the employer to consult the representatives of any affected employees and note that is affected employees, not just the employees in scope. So, it could be, if you are the transferor, people who are left behind but who are nonetheless affected by the change in the business. And it is an obligation to inform appropriate representatives. So the idea is it is a collective scenario, people are better represented if they have got spokespeople on their behalf and also from an employer's perspective it makes it a slightly more streamlined process so you can have group meetings rather than have to meet with everybody individually.

So, who are the reps? Well, if there is a trade union recognised by the employer for all the staff or a section of the workforce, then for those staff to whom the recognition applies, the trade union has to be consulted. For other staff or where there is no recognition at all, the employer can chose between consulting with reps who have already been elected for another purpose, as long as their remit is wide enough to cover the TUPE transfer or the employer can invite the employees to specifically elect representatives for this TUPE transfer. And there is a qualified exemption there if you are in a business that employs fewer than 10 people, you can just consult directly with the individual employees, you do not have to do the election mechanism.

So, what about the duty to consult? Well, it is compulsory to consult if an employer envisages measures, taking measures, in relation to any affected employees and that obligation is to consult with the reps with a view to reaching agreement. Now that is the compulsory consultation obligation but what case law tells us is, even if no measures are envisaged, an employer should leave enough time in the timetable for voluntary consultation to allow the staff to ask any questions, raise any concerns they might have. So that begs the question really what does measures mean? The transferee has a duty to tell the transferor of any measures it envisages taking in respect of the staff it inherits and measures, according to caselaw, because it is not defined in TUPE, is a pretty low threshold so it is any change as a result of the transfer that impacts on the staff. So, for example, a change in payroll date, with a consequent change in tax code and deductions, is a measure and should be consulted about, and clearly things like redundancies are major changes for people and therefore definitely trigger the duty to consult.

Similarly, pension changes, I am not going to stray into Liz's territory, but often on a TUPE transfer pension changes happen, they are measures and should be consulted on. And just finally on consultation, it is defined as with a view to reaching agreement. So, it is not negotiation, the employer doing the consultation ultimately has the final say in what happens but it is a sort of enhanced consultation obligation because it is supposed to be done with a view to reaching agreement with the reps on points that they raise. So, there are a number of tricky issues on TUPE consultation which can trip people up so before you start on your planning, if you have got a union, check it is properly recognised, does it represent everybody affected, if you are going to consult with a pre-existing body then check that they have the right authority and all the people on that body have got terms of office that have not expired, for example, which could trip you up.

Why is it important? Well, a football themed photo there, given where we are in the football timetable, there is a hefty penalty. So a good shorthand for what is on the screen now, if you are trying to get the attention of your commercial colleagues or the Finance Director is, if you mess this up, it is a quarter of the annual wage bill for all the affected staff. And it is a penalty, it is not compensation, and what Tribunals will do is if an employer has done nothing to try and inform and consult, then they will give that maximum 13 weeks' pay. If you have done something, then you get the opportunity to try to get the Tribunal to reduce that award to something more commensurate with the level of default. There is a special circumstances defence but it, like all exceptions, is construed very narrowly so I would not get too excited about relying on that.

Generally arguments around confidentiality, getting into financial difficulties quickly, preventing people from doing information and consultation more thoroughly do not tend to carry much weight with Tribunals. So the message is basically do as much as you can, even if that is not going to be fully compliant. In terms of liability, if we are talking about the transferor consulting with its employers and that is not done properly, then that is a liability that can transfer to the transferee like most TUPE employment rights, and so liability there is joint and several. If the transferee's failure to consult with its own staff that is clearly not anything to do with the transferor then that purely sits with the transferee.

And, as many of you will know, all of you probably, you cannot contract out of TUPE, you cannot contract out of these duties applying but what you can do is use your contract, whether it is an M&A scenario with the other side or in an outsourcing scenario with the customer, if you are the contractor, to try and reapportion the liabilities so they sit where they should in terms of the commercial deal, so, if the transferee is driving the timetable because they want to get on with the deal, they want to shortcut the process, then it is right and appropriate for the transferor to be asking to be indemnified for that.

So, moving on from TUPE to collective redundancy, again this is a collective duty to make sure staff are better looked after and again it is informing and consulting and this obligation is triggered when an employer is proposing to dismiss as redundant 20 or more staff at one establishment within 90 days or fewer. And you can see that unlike TUPE there are some minimum time periods here. They are minimum time periods which have to elapse between the start of the information and consultation process, so when the information is given to the reps, and the first of the redundancy dismissals taking effect and, as you can see, the length of time depends on how many staff are concerned. So, 20 to 99 people, it is 30 days, 100 or more, it is 45.

Now, there is clearly an overlap with the TUPE process, there are some similarities; the appropriate representatives are the same, there is a similar penalty, there is a special circumstances defence, but again do not get too excited about that, but there are various differences which can trip up the unwary. We don't have time to go into all of those today but if you look at your 'Download' tab, and go through that, there is a document we have uploaded there which sets out what the differences are and you can print that off and keep that for future reference.

So, that will give you the details of what has to be given by way of information and more information about the consultation details. But the one thing I wanted to flag is for redundancy, unlike TUPE, there is a separate obligation to deliver to BIS, so to the Secretary of State, with a copy to the representatives, an HR1 form and that basically gives notification of the proposed redundancies, the numbers, timescale etc. And it is to help the local job centre essentially plan for people coming and needing their support. It is a criminal sanction not to deliver that form and so again it is definitely something that you should factor into your planning. It has to be given in good time before the first redundancy takes place, but usually people will give it at the same time as they start the information process with the reps. Again, why do you need to do that? Well there is a pretty hefty penalty, similar to TUPE but 90 days' gross pay and the same principles will apply to how a Tribunal will approach awarding that penalty. And if you are in a TUPE and collective redundancy scenario and you do neither, you follow neither process, then the Tribunal can award both of those awards. So that is an even heftier penalty that you are facing.

So, one of the practical differences that comes up when there is a TUPE and redundancy scenario is that often the transferee does not want to have to wait to inherit the staff under TUPE before it makes the necessary redundancies. Firstly it wants to get on with things, secondly it does not really know the staff and so often there is pressure for the redundancy dismissals to be made before the transfer. Now, that causes a bit of an issue under TUPE because only an employer can be sure of carrying out effective redundancy consultation with their own staff and obviously, up to the point of the transfer, the transferee is not the employer of the people it is going to inherit. So this has caused practical issues and often this is dealt with by the transferor agreeing to let the transferee into do the consultation, as long as they are indemnified, and the transferee takes the risk that the employees do not challenge the fact the consultation has effectively begun too early.

So, the Government was aware that this issue is causing difficulty in practice and when TUPE was last revised in 2014, they tried to do something to alleviate the difficulties for employers. So they introduced an opportunity for a transferee to elect to do the collective redundancy consultation before the transfer as long as they got the transferor's agreement to do that and the mechanism is a legal fiction whereby the people remain employed by the transferor but there is a legal fiction that treats them, purely for collective redundancy consultation purposes, as if they are already the transferee's employees. Now, it is a kind of one off choice, the transferee can only cancel this once so once they have started they can cancel it but they cannot then start it again. They would then have to restart after the transfer and obviously they have to give notice to the transferor and to BIS and to the reps that they are no longer going ahead with this and they are going to wait and do it after the transfer, so it is helpful, to some extent, but it is not necessarily an ideal solution.

Siobhan: OK, thanks Jane. We are now going onto our poll question which is an opportunity for you to get involved about what you do in practice and that should be flashing up on your screen now. So, it is over to the audience to ask you what do you do in practice when faced with 20 or more redundancies on a TUPE transfer, does your organisation i) collectively consult and dismiss the employees beforehand before the transfer, ii) collectively consult and dismiss the employees after the transfer, iii) the third option is to use this pre-transfer collective consultation process but still dismiss the employees before the transfer or iv) some other mechanism and process that you use.

So, if you want to click on which option you use in your organisation. Some of the responses are coming in already and I will just give you a few more moments to decide which is the most appropriate answer for you because it is a really interesting issue as to what is happening on the ground which is not always necessarily in line with what the legal position is. So, a few more answers and I am going to display the results now. OK, so we have got the vast majority there, nearly half of you, showing that you collectively consult and dismiss the employees after the transfer. That is way above the other options. So Jane, that is really interesting.

Jane: Yes and people still take the more cautious approach of doing everything afterwards and the use of this pre-transfer mechanism still leaves some tricky issues. So, if we go back to the main slides and I can carry on and highlight what some of those are. So, one of them is it definitely needs the transferor's agreement to do it but there is nothing in TUPE that then says the transferor has to co-operate, so there has to be some discussions with the transferee to get the transferor's buy in to allow access to the premises to see the staff so just getting the transferor's agreement is not the end of the story. There can also be issues where the redundancy consultation straddles the transfer date so it starts before but finishes afterwards, have you got the right representatives, are they actually going to be there before and after or are they not actually coming over on the TUPE transfer. So, all of that needs to be factored into the planning.

Also, as I said earlier, it only applies to the collective aspects of redundancy consultation. So it does not permit individual consultation with those selected for redundancy to be consulted with on that basis beforehand with any confidence for the transferee that that will be a fair dismissal, so again it is more prudent to do that after the transfer has happened. And there are also issues around pooling, should you pool with your own staff, if you are the transferee or is it OK to ring-fence to just the people that you are inheriting? And also there is the issue of when do you give notice and who can give notice?

Only an employer can give its employees notice to dismiss so, to be completely safe, it is better for the transferee to issue notices of dismissal having inherited the staff, even if that is then achieved by way of notice and an immediate PILON so they do not carry on in the employment. And there are risks around dismissing pre-transfer which we are going to come on to in a moment, but before we do that, I just wanted to finish on pre-transfer consultation as I think the poll showed, we see that you occasionally, more often in an M&A scenario, where you have got two parties contracting directly and it may suit both of them commercially for this to be done. It is less common, in our experience, in outsourcings, particularly second generation outsourcing, where the outgoing contractor, who has just lost a contract to a new contractor, is not really going to have much commercial interest in cooperating with that competitor.

So there, unless the customer has thought ahead and built into the contract, with the outgoing contractor, an obligation to cooperate with the transferee if asked to do this type of consultation, then it rarely happens. So, the transferee has to carry out a risk and benefit analysis basically. It is going to be faced with requests for indemnities from the transferor potentially if those are not already catered for in the existing contracts, it is going to have to come to some sort of agreement about the level and detail of cooperation by the transferor and that is going to take time and effort to get agreed and another document to be sorted out in the transaction and it may be that some of the staff need to be dealt with by way of opt-outs and settlement agreements again which may involve the transferor and their co-operation. So, back to the future, I say, in the sense that most situations are still dealt with without this pre-transfer consultation being used.

I said we would come back to looking at dismissals and the risk of making dismissals for redundancy or otherwise before the transfer. The problem here is that we have got automatic unfair dismissal territory with TUPE so, if the sole or principal reason for the dismissal is the transfer, then it is automatic unfair dismissal unless the employer can show that the sole or principal reason was actually an economic, technical or organisation reason entailing changes in the workforce.

Now, until recently, caselaw said that changes in the workforce, to be an ETO, had to relate to the numbers or the functions and often in a TUPE situation, perhaps the new contractor is going to deliver the service from elsewhere, perhaps the current one is in Bristol and the new one is in Glasgow, that will involve a geographical relocation which does not fall within that definition of an ETO. So again in 2014, when making the changes, the Government recognised this problem and extended the definition of ETO to cover dismissals arising purely out of a relocation. So that is helpful to some extent but there are still some risks with taking that approach.

So, the two main risks of dismissing pre-transfer are that, under European case law, the transferor cannot borrow the transferee's ETO reason to achieve a fair dismissal. So, in that example I just gave of a move from Bristol to Glasgow, the transferor needs all the staff in Bristol until the last day of the contract. It is then the transferee that has the need for those people in a different location, in Glasgow, and it is the transferee's ETO reason. So, if the transferor dismissed pre-transfer, down to that relocation, then that creates an automatic unfair dismissal which the transferee will then inherit.

The second issue is that a change of location can still trigger an ordinary unfair dismissal claim in a sense that there is an opportunity for staff, if there is a substantial change in working conditions to their material detriment or something that constitutes a repudiatory breach of contract in connection with a TUPE transfer, they can resign and claim unfair dismissal. And we have seen cases recently where that has happened where a relocation has impacted, for example, on someone's ability to drop their children off before they go to work. It has doubled their travel time or they cannot actually get to work on time, so it does not happen that often but it is a reality. And if somebody resigns and objects to transferring, that claim will stay with the transferor, even though the change of location is not their choice or within their control. So you can see the need for indemnities and discussion around that.

So there are still risks despite the 2014 changes to making redundancy dismissals pre-transfer. I have outlined those on the slide there in summary. I have mentioned them already so I am not going to go through them again, but what this shows you is that in each TUPE and redundancy scenario you are going to have two broad things to be thinking about. The commercial pressures, so are you a transferee coming in needing to make redundancies, how quickly do you need to do that to deliver on your contract, how cooperative is the other side? If you are in an M&A situation, you might have a more cooperative other side, not necessarily, but in a second generation outsourcing those commercial pressures are going to be very different, and you have got the customer dimension to build in there as well. But there is also balancing that with the employee relations side of things.

So, if you are in a collective redundancy scenario, you are going to have a group of people who are going to be going, a group of people who are going to be transferring and the people transferring will look at how you, as their new employer, deal with the colleagues that are not coming across and how you deal with making them redundant. And, as your first contact with those staff that you are inheriting, it is an important thing to plan for and to get right and to decide which shortcuts you are prepared to take given the balance between commercial pressures and employee relations needs.

Siobhan: Great. Thank you very much indeed Jane and just a reminder about that download that Jane mentioned which is under the 'Download' tab and there is also another one there as well about Beckmann rights which is the next topic. So, I am going to bring in Liz Wood now who will be covering identifying and managing Beckmann rights.

Liz Wood: Thanks Siobhan. So yes, I am going to be looking at the vexed question of Beckmann rights. So these are the potentially expensive pension rights that can form part of a TUPE transfer even though they relate to the occupational pension schemes of the transferor. So, from the perspective of the buyer or the new provider, there are clear incentives to identify these kind of rights sooner rather than later and factor them into any TUPE process you are considering. And so what are the incentives?

Well, mainly an assessment of what they might mean in financial terms, but also the controls that you might have as a new employer in relation to the transferring employees and in relation to those rights and also in terms of any deals that you might be able to reach with the transferor employer in the context of a sale or an outsourcing. So, I will begin by looking at what Beckmann rights are and how they arise and then I will consider how far the duty to provide such rights extend to a transferee employer, and then I will give you some pointers around how to deal with them if you have identified they exist in the context of a TUPE transfer.

So, we have the automatic transfer principle set out in TUPE, whereby all terms and conditions of a transferring employee's employment will transfer across to the new transferee employer. But there is an important exception to this principle, which is found at Regulation 10 of TUPE, and this essentially says that all the usual transfer principles do not apply to so much of an employment contract or collective agreement which gives rights, powers, duties or liabilities in connection with an occupational pension scheme. So, in shorthand, it means that there is a broad exclusion for occupational pension schemes and rights, liabilities, duties and so on associated with those remain with the transferor employer.

Now, just to be clear this applies to occupational pension schemes only and that is essentially any pension scheme established by the employer to provide retirement benefits for its employees. So, importantly, personal pension schemes do not form part of this pensions' exclusion. Rights associated with personal pensions are subject to the general TUPE transfer principle and then, what I am going to come on to talk about, is relevant to personal pension schemes.

Now, in the context of Beckmann, we are talking only about defined benefit or final salary occupational pension schemes. And, in broad terms, this Regulation 10 exclusion means that an employee who is a member of this type of scheme will not have the right to continue participation in such a scheme once a TUPE transfer has taken place. And so these are defined benefit final salary schemes, where essentially an employee has a certain amount of quantifiable pension when they come to retire that the employer had promised to provide. So, under this exclusion, the bulk of pension rights remain the responsibility of the transferor.

But this next slide is a reminder of the fact that an occupational pension scheme has a number of rights that are available under the scheme rules. And these are primarily rights that you would get in terms of having reached your normal retirement age at the end of your working life with an employer, but also rights that you might get in certain circumstances of ill health, and also pensions that might be payable to a survivor, say for example, a spouse or civil partner, in the event of a death of a member. But there will be other rights that that pension scheme might provide and these are the types of rights that might be subject to a TUPE transfer because of the wording of the pensions exclusion found in TUPE, which talks about old age, invalidity and survivor's benefits. So, what kind of rights might these be?

Well, we firstly had a case decision on this in 2002 and this was an ECJ decision in the case of Beckmann. Now, Ms Beckmann was a quantity surveyor and she was a member of the NHS pension scheme and she was subject to a TUPE transfer to a private company. Now, under that NHS pension scheme, before the transfer she had been entitled to very generous early retirement benefits payable on redundancy. She was then subsequently made redundant after the TUPE transfer and her new employer did not accept responsibility for those redundancy terms which were payable from the old NHS scheme. And this ultimately went up to the ECJ and the ECJ said these benefits that are payable in circumstances of an employee's redundancy are simply not old age benefits and so therefore, looking at the wording of the TUPE exclusion around pensions, they do not fall within that exclusion referring to old age, invalidity and survivor's rights. And so, therefore, these rights arising on redundancy, giving you enhanced terms under the pension scheme would be capable of transferring. So that was quite a seminal decision that we had there on Beckmann and that is why we therefore talk about Beckmann rights.

The next decision we had on this was that of Martin and that was just a couple of years later but it was decided around the same time as Beckmann, and it followed the Beckmann rationale. And in this case we had nursing lecturers, who had also been members of the NHS pension scheme, they were also subject to a TUPE transfer and in this case they were dismissed in circumstances which was not described as redundancy, but what the Employment Tribunal said was 'in the interests of efficiency of the service' and again they said, "Well actually, under the NHS scheme we would have got enhanced rights as early retirees and therefore we want to take the benefit of those rights and they should transfer" and the ECJ agreed. It said these again are not old age benefits. These are early retirement enhanced rights and these are liable to transfer under the general TUPE provision.

So these decisions had significant implications for corporate transactions because essentially what this had flagged was that there might be rights that would transfer in connection with an occupational pension scheme, but transferees were very much left in the dark around how they would assess the financial liability for providing those kind of benefits. But what we did not ask in Beckmann and Martin was a number of things. Firstly, whether these decisions only applied in a public sector context? So those Beckmann and Martin decisions had been in relation to the NHS pension scheme, there certainly have been arguments that this might not be the case if you had a private sector to private sector TUPE transfer. There were questions about whether if there are consent questions attached to those early retirement rights, whether those would transfer, and also how much the transferee would be liable to provide this enhanced pension.

We then had the decision of Procter and Gamble in 2012, which is why we have got an image of toilet tissue up on your screen, because this was around the sale of Procter and Gamble's European toilet tissue business. And the parties here recognised that there were Beckmann liabilities associated with the transferring employees' employment. But the parties simply could not agree the value of those Beckmann liabilities. Procter and Gamble said that the buyer of the business simply did not have any exposure and so therefore the rights attached to those Beckmann rights were £0 and the buyer said that these rights were prohibitively expensive, and worth around £19 million. So this is essentially why it reached the High Court.

Now, the Procter and Gamble decision was extremely helpful because it clarified a number of things that we did not know. Firstly, the decision said that this was not restricted to a public sector context, so this does apply to private sector TUPE transfers. And the Judge was willing to give Beckmann and Martin rights a very wide possible interpretation. The case also confirms that, if the early retirement right is discretionary, so it is subject to employer consent, that consent would transfer to the new employer. So employees would have an expectation of being treated fairly by the transferee when considering such a right and the Judge said that the duty to consider the request should be made in good faith. But interestingly, the Judge also said that the employer was entitled to consider its own financial interests and that is relying on a case called Prudential, and I think that is particularly helpful for transferee employers because they essentially might want to have a check and see if there are consents provisions attached to these Beckmann rights, to see if they then want to exercise the discretions to decline to allow those rights to be exercised.

What Procter and Gamble also said was that these rights only extend to the enhancements. So what this means is that the deferred pension payable from the transferor's occupational pension scheme remains the responsibility of the transferor. The transferor is essentially funding that benefit through that occupational pension scheme that has remained in place with the transferor. So that is not changed by Beckmann or Procter and Gamble, but what the Judge here was saying was that if there is enhanced early retirement or redundancy pension that is payable, the transferee will be liable for the cost of that enhancement. So, you are essentially deducting off the cost of the deferred pension as against the enhancement cost. So, again, that is helpful for transferee employers because it avoids significant additional costs that would be provided in terms of having to provide a deferred pension, in addition to the enhancements.

The Judge in Procter and Gamble also said that this enhancement only lasts up to the date of the member's normal retirement age. So, essentially, at the point at which the member reaches their normal retirement age, be that 60 or 65 under the scheme rules for example, that then becomes an old age benefit. So, it is essentially morphing in nature and it then falls under the pension exemption again. So, it is an old age benefit that then remains with the transferor. So again, that restricts the transferee's potential liability here.

So, moving now on to practicalities, well, how do you manage these Beckmann rights knowing what they are? So, I have summarised on this slide just a handy aide memoire in terms of what this Beckmann right is and in terms of what you are looking at. Well, if you are dealing with a future TUPE transfer, the key questions that you need to ask yourself are, are the transferring employees currently before the transfer members of the defined pension scheme, or are they transferee's employees formerly members of such a scheme because in either scenario they might have these Beckmann liabilities which would transfer across to you as the new employer. And, in either of those circumstances, the first point of reference is to check very carefully the relevant scheme rules, in order to establish whether there is a Beckmann liability, and you may well need legal advice on that because it is not always desperately clear from the scheme rules.

It is also worth noting, at this point, that there are some industries or sectors where defined benefit pension schemes are more common. So, for example, in the public sector, obviously with the examples of the Beckmann and Martin cases where we looked at this in the first instance, but also privatised industries, so, utilities, transport, nuclear power, manufacturing businesses often had these kind of occupational pension schemes, financial services and other professional advisors and more generally the longer established FTSE 100 and FTSE 250 companies.

So the key points are doing your due diligence, so checking the pension scheme rules, are there enhanced rights payable on redundancy or on early retirement at the employer's request or early retirement on business efficiency grounds? And at this point it may be wise to get actuarial input so essentially number crunching on the value of those rights, very much taking into account the Procter and Gamble decision that you, as a transferee, would be only liable for the enhanced element of that pension.

In terms of practicalities, again it is important to understand the consent position so you, as a transferee, do you have control over those rights, do you have the right as an employer to decline to offer that enhanced benefit on a redundancy situation? Crucially, it is important to try and get some sort of indemnity protection from the transferor, if you are the transferee. In my experience, these need to be very much tailored to the situation of the buyer and seller or, in an outsourcing, it would depend on the negotiating position of the two parties and you might also want to have some sort of agreement as to who bears the costs of any such liability arising.

I would also say be cautious if you are considering a price adjustment mechanism as part of the transaction because clearly in Procter and Gamble that turned into an absolute nightmare in terms of establishing what exactly the purchaser needed to pay for the business, because they essentially ended up with a bun fight around the cost associated with the Beckmann liabilities.

The final practicality is the really challenging question about how you as a transferee would provide these Beckmann rights ultimately to the employees if you are making them redundant. So the scenario in which you recognised that these Beckmann rights exist, they are either not subject to any consent or you have exercised your discretion and granted the consent rights here. But how do you give those rights to the employees? You are not going to be a participating employer in the transferor's pension scheme; you are unlikely to want to do so because of the funding associated with that. In my experience, there are three main options available to transferees to deal with this.

The first is simply a promise to pay a certain amount representing the value of those rights once you have established what the value is. I have also seen it done where a transferee offers to provide a replacement Beckmann right through an existing, for example, defined contribution scheme, so essentially a lump sum into that scheme to deal with those liabilities. Or alternatively, the transferee might want to try and negotiate with the transferor, and probably the Trustees of the transferor's pension scheme, to essentially pay a top up to provide that enhancement through the scheme rather than having to deal with it outside the pension scheme as a transferor.

There are a number of issues associated with all these options including tax issues so it is clear that this remains a complex issue to deal with but fundamentally the more due diligence that you can do to identify Beckmann liabilities and the better indemnity cover you can get as part of any transaction remains the best way of dealing with the costs and risks associated with these types of rights.

Siobhan: Great. Thanks very much Liz. That brings us nicely on to our second poll. Again this is one looking at what you do in practice and the poll should be there on your screen now asking how do you tend to deal with Beckmann liabilities arising in practice and this is assuming that you are the transferee for these purposes. So (1) offer the employees a cash sum in settlement; (2) offer employees a lump sum into their existing pension; (3) agree with the old pension scheme to provide the enhanced benefit through that scheme; or (4) thankfully you have never had to deal with it in practice? So, I'll just give you a few minutes to click on there and a reminder that there is still time to ask questions if you want to submit questions at any point in the next few minutes, that would be fine and the questions are coming in thank you very much for participating in that. I think we are looking like we have a clear winner. OK, so the yellows have it by a long way. I mean yellows are that you have thankfully never had to deal with it so that is interesting in itself Liz.

Liz: Yes absolutely, well I guess a lot of people are attending then just in case this ever happens in practice. So yes, it probably reflects I think our experience that Beckmann rights come up occasionally, but you can imagine when they do it's a financial potential nightmare for the transferee so they want to get it right.

Siobhan: Absolutely. OK thank you so we have a few minutes now for questions. So thank you for participating in that as well. Let us see one of the typical questions that are coming in are on a very topical issue which is relating to both of the speaker's subjects today. That is, what impact Brexit might have on the issues we have raised today. So, I will ask Jane to answer that first.

Jane: Sure OK. Well as with everything with Brexit, there is no change immediately, we have not actually left yet. We have got the process to go through to do that and what that actually means obviously it is going to depend on the political will that prevails in how we come out, but in terms of TUPE and the collective redundancy regime which I looked at, both of those things come originally from Europe. So the individual redundancy regime is a domestic piece of legislation so redundancy payments, time off to look for work, that is UK law and always has been, but the collective redundancy regime, like TUPE, is the result of European directives.

So to that extent they are at least in scope for review. But will they be repealed completely? Well, both are pretty well established in employment rights landscape now. TUPE is catered for in literally thousands and thousands of contracts, particularly in the outsourcings. The contracts have been drafted on that basis so, my view, is that a total repeal of TUPE would seem unlikely. I think what is more likely is some relaxation of the rules to make it more employer friendly.

So, for example, changing the law so that a transferor make redundancies fairly before transfer on behalf of the transferee would really help in this area and similarly, on the collective redundancy regime, it is really unhelpful that after all the years we have had this in place, European caselaw has not yet managed to give us a clear answer on what is the trigger point for collective redundancy consultation, so the directive talks about 'contemplating' dismissals, our legislation talks about 'proposing', what do they actually mean?

It is all very fuzzy in the European case law, so the UK Government untrammelled by that, would have an opportunity to be clear at law what the actual trigger is and that would remove uncertainty and risk which is always unhelpful to businesses.

Siobhan: Thank you. Liz, for the pensions' angle?

Liz: Well I would definitely echo what Jane was saying in terms of the application of TUPE and whether that would be removed or tinkered with. I guess the Beckmann liabilities are particularly unusual because the pensions' exclusion talks about old age, invalidity and survivor's benefits which has never been a legal concept that we talk about in the UK. It actually was lifted from some archaic German social security legislation, so it has always been a bit of a mis-match.

Equally, the pensions' exclusion makes sense; there is no reason why transferee employers should have to pick up liabilities of the transferor's occupational pension scheme. So again, I think we would have to get pretty far down the line before pensions exclusion was removed or changed, if TUPE did remain in a different form. What I think might be more likely is that TUPE remains but we leave the EU in a way that means the English Courts are no longer bound by the decisions of the ECJ and it is possible in the longer term that someone might litigate on the meaning of the pensions exclusion, and then decide that Beckmann and Martin were wrongly decided. But I think that is a long way in the future, that is kind of crystal ball gazing, so I think for the time being it is certainly steady safe in terms of what are the lookout on Beckmann liabilities.

Siobhan: OK, so that is really helpful. So a lot of ifs and buts but we know where we are at the moment. OK, so the next question is one for Jane which is looking back at the criminal prosecutions relating to the HR1 forms and what are the risks in that area?

Jane: Well, if we had been doing a webinar a couple of years ago, I would probably have said clearly that you do not particularly want to have a criminal sanction against you so you should lodge the HR1, but actually no one in our team - which is a big team with many, many years of experience - has actually come across anybody being prosecuted for failing to do it. But, in the last couple of years, there have been two sort of high profile cases in insolvency situations where the directors have actually been prosecuted for failing to give the HR1 promptly.

So, the first one was City Link, where the allegation that the claim was brought on the basis they had not given enough notice of redundancy plans. City Link went into administration on Christmas Eve and BIS said that at that point redundancies were inevitable and had been since 22 December and the directors should have served the HR1 before Christmas. In fact, they did not do it until Boxing Day so we are only talking about a matter of days, but it was lodged by the Company Administrator on Boxing Day. And in that case, the Judge did find in favour of the directors. It found that they were still hopeful on 22 December that a buyer would be found and it would not have to make redundancies, so they were actually acquitted, but it shows that BIS are sort of prepared to run those sorts of cases.

And the other one is Sports Direct where they were charged with failing to notify BIS of redundancies at USC, a fashion retailer. That case is still ongoing and there is a jurisdictional argument at the moment. So, we are not quite sure whether that one will result in an acquittal as well. But what it does show is that BIS is making an example here and it brings home that it is actually a criminal offence which, for statutory directors, could have a very, very significant impact on their ability to continue in their chosen work.

Siobhan: They certainly have been high profile with a lot of publicity around them, so one to watch going forward. Now we have only got time for one more question because we are running out of time and I will pass that over to Liz.

Liz: Thanks Siobhan. So, we have had a question in around how you negotiate the Beckmann indemnity if it is unclear how to calculate the liability in the first place? And that is really, really good question. What I have seen done before, is that sometimes actuarial input is sought, so essentially you might, as a transferee, go and seek actuarial input as to when those Beckmann rights might arise in respect of the transferring employees. You will be looking at the age of the employees, thinking about whether you are likely to make redundancies within a certain period of time of the TUPE transfer. The transferor might want to do the same thing if you are coming at it from very different figures, but also in lots of scenarios I don't see actuarial input being sought.

Essentially it does come down to where you are in terms of your commercial decision making on the agreement. Do you have a strong negotiating position, do you want to limit any Beckmann costs to, for example, redundancies that are made within six months of the transfer, or is there a de minimis cost that you might associate with the indemnity? I have seen lots of different things done and I think because of the difficulties with trying to establish what the costs are, because these are essentially rights which only arise if someone is made redundant after the transfer and that just might not be clear at the point of the transfer around whether that is going to happen. For those reasons, it just means that there is no one size that fits all in terms of the indemnity and it does mean that you will have to negotiate that depending on where you are and your negotiating position with the transferor.

Siobhan: Right, thank you very much indeed Liz and thank you to everybody for joining the Webinar today and do not forget that you can get copies of the slides under the 'Slides' tab and the 'Download' is there as well for you to look at after the Webinar. So, thank you for listening and taking part. Just before we go, if you do have a moment, we would really appreciate if you filled in the feedback form and if there is anything you want to go over today regarding the Webinar, there will be a recording and a transcript available shortly and we will let you know when that is going to be available on the website. So, finally many thanks again to Jane and to Liz and thank you for taking the time to join us.