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Unpaid accrued pension entitlements were also transferred in a transfer of undertakings

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calendar 28 February 2021
globus Norway

A transfer of undertakings of a kindergarten meant that the new company became liable for payment of unknown, accrued pension entitlements. However, the new company claimed that an obligation to pay the accrued pension entitlements was in breach of the European Court of Justice’s practice. The Norwegian Supreme Court ruled that a duty of payment for already accrued pension rights was transferred to the new owner after a business transfer.

A kindergarten had entered into a municipal occupational pension agreement for its employees. The agreement was covered by Sikringsordningen – a scheme that ensures that necessary pension premiums are paid when the company does not pay. When the pension agreement was later replaced, the kindergarten was still obligated to pay the accrued pension entitlements for already accrued pension under the original pension agreement. Accrued pension entitlements are premiums that cover non-insurable services, such as adjustment of pension due to general wage development.

However, the kindergarten did not pay the accrued pension entitlements. Therefore, Sikringsordningen paid the entitlements to maintain the employee’s earned pension rights. Following a transfer of undertakings, Sikringsordningen raised recourse claims for the accrued pension entitlements against the new company, as well as the recourse claims that had occurred before the transfer of undertakings. Payment of accrued pension entitlements were not included in the transfer of undertakings agreement. The new company refused to pay the accrued pension entitlements and as a consequence, Sikringsordningen initiated court proceedings.

The new company argued that a duty to pay the amounts would be a breach of EU case law. The new company further claimed that there had to be a special reason for them to be liable for the accrued pension entitlements that had occurred prior to the transfer of undertakings. On the other hand, Sikringsordningen argued that the new company was obligated to pay after national legislation, making EU case law irrelevant for the question at hand.

The main question for the Norwegian Supreme Court was therefore whether the new company was responsible to pay for both its own accrued pension entitlements and the accrued pension entitlements from before the transfer of undertakings.

Rights to pension did transfer with the undertaking

The Norwegian Supreme Court found that in the EU directive on transfer of undertakings, the main rule is that the right to pension is not transferred during a transfer of undertakings. However, the directive entitles Member States to introduce more favorable rules, which has allowed Norway to make the main rule that pensions are included during transfer of undertakings. The case law of the European Court of Justice was therefore not relevant.

As more favorable rules on the right to pensions had been introduced in Norway, and as these favorable rules were not explicitly limited to future pension rights, the Norwegian Supreme Court found that already accrued pension rights were also covered.

Based on this, the Norwegian Supreme Court found that the duty of payment for the accrued pension entitlements had been transferred to the new company.

IUNO’s opinion

The new company had not been aware of the duty of payment during the transfer of undertakings, and this was not regulated in the agreement. The judgement illustrates how important it is to conduct a thorough due diligence process and to seek appropriate legal advice, as a transfer of undertakings otherwise can end up triggering hidden costs for the acquiring entity.

How the EU directive on transfer of undertakings has been implemented deviate depending on the Member State. Denmark, for example, has also introduced more favorable rules regarding pension, while Sweden, has not. IUNO recommends that companies carry out a thorough investigation of the obligations and rights that exist towards the employees, prior to entering into an agreement on business transfer.

[The Norwegian Supreme Court’s judgement HR-2021-61-A of 18 January 2021]

A kindergarten had entered into a municipal occupational pension agreement for its employees. The agreement was covered by Sikringsordningen – a scheme that ensures that necessary pension premiums are paid when the company does not pay. When the pension agreement was later replaced, the kindergarten was still obligated to pay the accrued pension entitlements for already accrued pension under the original pension agreement. Accrued pension entitlements are premiums that cover non-insurable services, such as adjustment of pension due to general wage development.

However, the kindergarten did not pay the accrued pension entitlements. Therefore, Sikringsordningen paid the entitlements to maintain the employee’s earned pension rights. Following a transfer of undertakings, Sikringsordningen raised recourse claims for the accrued pension entitlements against the new company, as well as the recourse claims that had occurred before the transfer of undertakings. Payment of accrued pension entitlements were not included in the transfer of undertakings agreement. The new company refused to pay the accrued pension entitlements and as a consequence, Sikringsordningen initiated court proceedings.

The new company argued that a duty to pay the amounts would be a breach of EU case law. The new company further claimed that there had to be a special reason for them to be liable for the accrued pension entitlements that had occurred prior to the transfer of undertakings. On the other hand, Sikringsordningen argued that the new company was obligated to pay after national legislation, making EU case law irrelevant for the question at hand.

The main question for the Norwegian Supreme Court was therefore whether the new company was responsible to pay for both its own accrued pension entitlements and the accrued pension entitlements from before the transfer of undertakings.

Rights to pension did transfer with the undertaking

The Norwegian Supreme Court found that in the EU directive on transfer of undertakings, the main rule is that the right to pension is not transferred during a transfer of undertakings. However, the directive entitles Member States to introduce more favorable rules, which has allowed Norway to make the main rule that pensions are included during transfer of undertakings. The case law of the European Court of Justice was therefore not relevant.

As more favorable rules on the right to pensions had been introduced in Norway, and as these favorable rules were not explicitly limited to future pension rights, the Norwegian Supreme Court found that already accrued pension rights were also covered.

Based on this, the Norwegian Supreme Court found that the duty of payment for the accrued pension entitlements had been transferred to the new company.

IUNO’s opinion

The new company had not been aware of the duty of payment during the transfer of undertakings, and this was not regulated in the agreement. The judgement illustrates how important it is to conduct a thorough due diligence process and to seek appropriate legal advice, as a transfer of undertakings otherwise can end up triggering hidden costs for the acquiring entity.

How the EU directive on transfer of undertakings has been implemented deviate depending on the Member State. Denmark, for example, has also introduced more favorable rules regarding pension, while Sweden, has not. IUNO recommends that companies carry out a thorough investigation of the obligations and rights that exist towards the employees, prior to entering into an agreement on business transfer.

[The Norwegian Supreme Court’s judgement HR-2021-61-A of 18 January 2021]

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