Andrew Powell: IBM case provides important insight for HR and pensions admin

The case of IBM UK Holdings and another v Dalgleish and others has revisited the issue of an employer’s duty of good faith towards its employees, particularly in relation to members of its pension schemes.

Andrew Powell

The remedies judgment was handed down on 20 February and, while lengthy, provides some important insight for those working in HR and pensions administration. 

The original High Court ruling found that IBM had breached the contractual duty of trust and confidence when it undertook a statutory employment consultation process in relation to changes to a defined benefit (DB) pension scheme.

The ruling found that IBM had not given members a clear explanation of why it was making those changes to its pension scheme and that it had deliberately misled employees in order to preserve its negotiating position.

Under particular scrutiny in this subsequent remedies hearing was the interplay between contractual changes and its effect on the pensions trusts. Employees agreed to certain changes to their employment terms and conditions in relation to their pension.

For example, some employees accepted salary increases to make up for pension alterations, or more restrictive early retirement policies. Following on from the original judgment finding the consultation process to have been misleading, the remedy judgment found that salary increases would have to be pensionable.

In effect, IBM has, therefore, paid for salary increases and will now have to pay for retroactive pension contributions on those increased salaries. Any employee that retired early as a result of the new policy was entitled to damages and members were also entitled to damages over the closure of future accrual of benefits.

There are two important matters going forward.

The first is how retirement is defined. In many pension schemes, those who retire with company consent have preferential terms. In cases of voluntary redundancy, the court found that this would be the same as compulsory redundancy and therefore these former employees would be entitled to the preferential terms.

Secondly, the debate as to whether pensions law prohibits settlements in cases such as this, where the retirement terms are found to be compromised, was left where it was. Genuine compromise between employers and employees is possible.

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This matter is likely to come before the higher courts in due course both on the question of liability and remedies.

Andrew Powell is a consultant in the pensions practice at Squire Patton Boggs.