Employers could be liable to pay pension contributions to employees that are found to have been unfairly dismissed and have lost out on pension rights as a result.
However, in such cases, employers must also be aware of the types of tribunal guidance on which such calculations can be based, the Court of Appeal has warned.
In the case of Griffin v Plymouth Hospital, the claimant successfully brought claims for constructive unfair dismissal and for disability discrimination on the basis of a breach by the hospital trust of its duty to make reasonable adjustments.
The tribunal found that had reasonable adjustments been made, the claimant would have been able to continue in employment with it indefinitely.
The loss of her employment also meant a reduction in her rights under the NHS final salary pension scheme. The issue centred on how those rights should be valued.
Following an appeal on remedy, a reconstituted tribunal decided that she would equal her pre-dismissal earnings within a 12-year period.
The Court of Appeal also agreed with this but not with the tribunal’s assessment of the component of the financial loss representing lost pension rights.
Guidance for tribunals recommends the use one of two alternative approaches - simplified or substantial loss - when assessing pension loss.
The key difference between the two is in the calculation of future rights. If the employment had continued, the employee would have had further years of service, which would have boosted their pension entitlement at retirement.
Under the simplified approach, this is measured by looking at the loss of the employer’s contributions for the period of time until the claimant is expected to have found a job with similar benefits.
In contrast, the substantial loss approach, uses actuarial tables to assess the capitalised value of the pension rights, which would have accrued up to retirement, otherwise known as whole career loss.
The claimant in this case put in a report from an actuary, showing a loss of £97,527.
However, her former employer calculated the loss under the simplified approach at £32,827 based on employer contributions for four years’ future employment before she would find another job with the benefit of a pension. Both the original tribunal and the reconstituted one agreed with the use of the simplified approach.
The Court of Appeal disagreed because the case fell squarely within the guidance that the claimant had been in her job for 15 years and would have remained in the final salary pension scheme to retirement had the employer made reasonable adjustments for her to continue in her role.
Ed Bowyer, a partner at law firm Hogan Lovells, said: “The tribunal was wrong to have treated the claimant’s age as decisive.
“The issue was not simply her age but the likelihood of her staying in employment up to retirement date. And the fact that she would eventually regain her pre-dismissal earnings was irrelevant.
“What mattered was her pension rights. A claimant may return to a job at a comparable salary but never get a comparable pension.”
