High Court – June 2015 June provided a positive ruling for employers who are considering amending the terms of their employees’ pension benefits contractually rather than through amendments to scheme rules. After much to-ing and fro-ing between the High Court and the Pension Ombudsman (the “Ombudsman”), an appeal against the BBC, in a case involving the imposition of a cap on increases of its employees’ pensionable salaries, was finally dismissed. In his ruling Justice Warren held that the BBC had not breached its implied duties of trust and confidence and of good faith by making the change through a contractual arrangement.

Background

The case was first brought before the High Court by Mr Bradbury (“Mr B”) back in 2012, after the Ombudsman had initially rejected the claim.

At that time Mr B had been employed by the BBC as part of the BBC Philharmonic Orchestra and was a member of a final salary section of the BBC Pension Scheme (the “Scheme”).

As was commonplace at the time, the Scheme was faced with a considerable deficit and the BBC decided to cap future increases to pensionable pay to just 1% a year (the “Cap”). Resultantly, any member who received a salary increase would only see 1% of such an increase attributed as pensionable pay, even if their actual increase in salary was, for example, 4%.

The BBC distributed an offer letter to Scheme members outlining their options, stating that they could either join a new career-average section of the Scheme, opt out of the Scheme entirely, or agree to the Cap and receive an increase in salary. The letter made it clear that if members did not agree to the Cap then they would not be eligible for a salary increase.

In finding that the BBC was able to introduce the Cap through an extrinsic contract, Justice Warren cited a previous decision in South West Trains v Wightman [1998] PLR 183 where it had been held that a similar collective agreement relating to pensionable pay could override the provisions of the scheme trust deed and rules.

However, Mr B also submitted that the BBC had breached the implied duty of good faith and confidence which it owed to its employees. Despite heavily hinting that the BBC had not breached its implied duties, the judge left it open for Mr B to refer the matter back to the Ombudsman on that point.

For a second time the Ombudsman rejected Mr B’s complaint, finding that it was open to the BBC to determine that only part of Mr B’s basic pay was pensionable.

Mr B appealed to the High Court once again, his legal representatives being critical of way that the Ombudsman had taken a ‘sequential salami-slicing’ approach to the issues rather than dealing with the issues as a whole.

The Decision

Mr B submitted that the BBC had breached its duty of good faith and confidence in a number of ways, none of which found favour with Justice Warren:

1. The manner in which the BBC had sought to implement the cap amounted to improper coercion

The Ombudsman had recognised that Mr B had been unhappy at being left with no other practical option but to leave his section of the Scheme, and that Mr B had felt put under pressure to do so. However, the Ombudsman held that Mr B did have options, albeit limited, and that in requiring him to make a choice the BBC had not been applying improper coercion. Justice Warren concurred with the Ombudsman’s conclusion.

2. The BBC had a collateral purpose in seeking to impose the Cap, which was to produce a greater turnover among older staff by making the Scheme less attractive to them

Justice Warren determined that the BBC was “entitled to choose the course which it did rather than the alternative course suggested by Mr Bradbury (or, indeed, any other course).”

3. The Cap amounted to indirect age discrimination against younger members

Although Mr B did not argue that he himself was discriminated against, he submitted that the Cap discriminated against the Scheme’s younger members. The Ombudsman determined that, as there was no submission by Mr B that he had personally experienced discrimination, there was no merit in ruling on the subject. Justice Warren concurred, stating that it “is a hopeless suggestion that, by virtue of the alleged age discrimination alone, the BBC was in breach of the Implied Duties owed to Mr Bradbury.”

4. The BBC had failed to consult members properly

Justice Warren determined that the Ombudsman had been “entitled to conclude (and it is necessarily implicit in what he said that he did so conclude) that the BBC did not need to consult with the Trustees before formulating its proposals.”

5. The Cap breached members' reasonable expectations that the BBC would comply with Scheme rules and make changes to the accrual rate by means of a rule amendment

Justice Warren dealt with this point by asserting that, it was “highly unlikely that the BBC would have reached an agreement which was an improvement on its eventual position” had it attempted to reach an agreement with the Trustees. He added that “once it became clear that the Trustees would not agree to amendments to introduce the Cap (whether because such an amendment would not be within the scope of the amendment power or because the Trustees viewed such an amendment unfavourably), the BBC would inevitably have had to adopt the contractual route and the result would have been no different from that which was eventually arrived at.”

The ruling is sure to be a reassuring one for employers who are considering or who have already taken similar action in respect of their pension schemes.