A recent Court of Appeal case (MF Global UK Ltd (In Special Administration)) provided a useful reminder that care should be taken when sharing employees between group companies.

Employees in the MF Global group were employed by a services company (Services) which paid their wages and the other costs of their employment. Services seconded employees to various other group companies, including a UK company.

When the group went into administration a dispute arose about which company should meet certain pension liabilities. The UK operating company was found to be responsible for these. Various factors were taken into account, including:

• The court recognised there was no express contract between Services and the UK subsidiary - the arrangement was “informal”.
• There was an express contract between Services and MF Global Holdings. This provided that whichever group company used the employees should pay all the costs (including the pension costs) incurred by Services in respect of the seconded staff.
• The UK operating company acted in accordance with this agreement i.e. it paid Services the staff costs, including salaries and pension contributions, equal to those it would have paid as the employer. Its annual accounts referred to the recharging of employee costs and in 2009 it had paid pension deficit reduction contributions directly to the employees’ pension fund.
• The court held that the reimbursement arrangement was sufficiently certain to amount to a legally binding contract. The recharging arrangements were only explicable on the basis of there being a contractual foundation.

This decision will mostly impact groups using employment service companies, though it is relevant to all group structures. If using arrangements similar to those used here, it is even more important to consider and document how you want them to work, not least where there are pension liabilities!