IBM United Kingdom Holdings Ltd and another v Dagleish and others [2015] EWCH 389 (Ch)

Fans of long running soap operas may find much appeal in the ongoing saga involving IBM and its pension schemes.

Judgment was recently delivered in the next instalment of the IBM case on which we have reported in previous editions of Pensions Pieces. This time, the court was looking at the question of what remedies were applicable, given the decision in the previous judgment which largely found against IBM in relation to its actions when trying to close its pension plans to future accrual, having non-pensionability agreements in relationship to future salary increases and introducing a new less generous early retirement policy. 

The potentially very costly judgment for IBM includes the following:

In the judgment last year, certain non pensionability agreements (whereby members agreed that they would only be entitled to any future salary increases if those were non pensionable) were found to have been in breach of IBM's duty of trust and confidence to its employees. Those agreements were now found to be unenforceable.  This meant that those members' salary increases would be pensionable (subject to previous agreements about part pensionability of those increases which were held to be valid). Those who had not signed up to such agreements and so had not received any salary increases were not now entitled to make a backdated claim for those increases, but they could claim damages if able to show loss by reference to the salary increases they would have received and the value of any equivalent pension loss.

  • IBM had also attempted to terminate future accrual from 6 April 2011 by giving members 'exclusion notices' which had been held to be in breach of its duty.  The Judge found these to be voidable - i.e. they could be invalidated by members (on an individual basis).  The mechanisms for doing so have yet to be determined by the courts (with particular issues around the position for members whose DB accrual 'ceased' on 6 April 2011 but who then accrued benefits in the DC section of the IBM schemes).   
  • Going forwards, if IBM wished to end future accrual with effect from a future date, it could do so (particularly because the time period, determined in the original judgment, for which members had a 'reasonable expectation' that accrual would continue had now come to an end). However, IBM could only so terminate by serving fresh exclusion notices and implementing a 'proper' consultation exercise, bearing in mind the changed economic and financial circumstances since the first exercise.  

Of note is that the Judge said that he was willing to consider imposing an injunction against IBM so that it could not take any steps to close the plans to future accrual unless it undertook or gave a binding commitment to only serve fresh exclusion notices having conducted a proper consultation exercise. This is a strong position, out of keeping with usual employment law treatment of failure to consult.

IBM's attempts to introduce a new less generous early retirement policy ('ERP') also came under fire in the original judgment with IBM having been found to be in breach of its good faith and trust and confidence duties towards its employees, and also a breach of members' reasonable expectations in this regard. Therefore the new ERP was largely held to be unenforceable, so that:

  • Any members who had retired earlier than they might otherwise have done given the impending introduction of the new ERPs would be able to claim damages if they could show loss resulting from the breach.  
  • Those members who had retired under the new ERP from 6 April 2010 to 6 April 2014 (the latter being the date when the judge had determined that members were entitled to have reasonable expectations that the old ERP would continue until) should be treated as having retired under the old policy (subject to them electing not to).    
  • Members who remained in service but who would have early retired under the old ERP if it had continued would have to prove this to claim any damages/ compensation.  
  • Certain employees who had been part of voluntary and compulsory redundancy exercises had signed waivers meaning that they could not claim any rights to enhanced early retirement benefits, but that did not mean that they could not benefit from other parts of the judgment where IBM had been held to be in breach of its duties of good faith.

So where does that leave us ?

There are still a number of outstanding issues to be determined, such as how members who had entered into the NPAs can now elect to render them void, and the granting of an injunction to prevent future attempts to terminate future accrual without proper consultation. We understand that there is to be a consequential issues hearing on 27 and 28 April to look at the outstanding issues and that IBM is seeking permission to appeal (with that hearing being due on 8 June 2015), so clearly this is not the end of the story. Despite that, and even though much of the judge's findings were specific to the facts in this particular case, employers who wish to change pension terms in the future would be wise to take note of the judge's comments about IBM's failings in this regard, to try to ensure that key legal requirements, particularly around consultation, will be complied with properly in such exercises to avoid them potentially being unpicked at a later date. Employers who have already implemented such mechanisms may also wish to review that process to address or deal with any possible deficiencies.