UK: High Court Confirms Use Of Contracts To Limit Pensionable Pay

Re Bradbury v. BBC [2015] EWHC 1368 (Ch) (The Case)
Last Updated: 17 June 2015
Article by Elmer Doonan, Jay Doraisamy, Andrew Patten and Paul Lawrence

Background

BBC Philharmonic Orchestra clarinettist John Bradbury was an employee of the BBC and a member of the final salary New Benefits Section of the BBC Pension Scheme (the Scheme). In 2010, faced with a £2 billion funding shortfall, the BBC decided to impose a cap on increases in pensionable pay of 1 per cent for active members (the Cap).

The BBC imposed the Cap contractually rather than through the Scheme's amendment power. Use of the amendment power was unpalatable as:

  • it would need the support of a majority of the active members;
  • the Scheme trustees opposed the Cap; and
  • a Scheme valuation was scheduled for the near future which was likely to show a big increase in the Scheme's funding shortfall.

Before imposing the Cap the BBC consulted with employees and their union representatives (but not the trustees). Partly because of that consultation the BBC offered employees the following alternatives to the Cap:

  • to stay in the final salary section of the Scheme and enjoy zero pay increases; or
  • to opt out of the final salary section and receive deferred benefits in that section, and either join the Career Average Section of the Scheme, or a defined contribution arrangement (called LifePlan).

Mr Bradbury opted for the zero pay increase for a year and then moved to the Career Average Section of the Scheme. He complained to the Pensions Ombudsman (the PO) on three basic grounds:

  • the BBC wrongly changed the definition of "Pensionable Salary" without amending the Scheme rules with the agreement of the trustees;
  • he had contributed to the Scheme in good faith on the basis that his benefits would be based on his full salary rather than the Cap; and
  • the BBC could not retrospectively lower the value of his accrued benefits by introducing the Cap as this breached section 91 of the Pensions Act 1995.

The PO dismissed his complaint on 24 October 2011. As the BBC was making this change through the contractual route and not the amendment route none of these arguments were relevant.

Mr Bradbury appealed the PO's decision to the High Court. He argued the PO had erred in his decision and had misunderstood the "Basic Salary" definition used in the Scheme. He added for good measure that the BBC had breached the implied term of trust and confidence and/or the implied term of good faith contained in his employment contract (the Implied Duties).

Warren J upheld the PO determination. However, he found that Mr Bradbury's Implied Duties arguments merited further consideration even though he had not raised them before the PO. As the BBC had not had an opportunity to address these he stayed the Case and remitted this part of the Case back to the PO for consideration.

In the remitted case before the PO in 2012 Mr Bradbury argued that the BBC's actions in imposing the Cap were in breach of the Implied Duties. The matters he relied on were:

  • Improper coercion by the BBC. The BBC had left him with no choice but to accept the Cap.
  • Improper collateral purpose. Based on some evidence from a former BBC HR officer Mr Bradbury claimed the main purpose of the Cap was to increase staff turnover among older and underperforming employees.
  • Indirect age discrimination. The BBC had been guilty of age discrimination in imposing the Cap as it discriminated indirectly against younger members.
  • Lack of meaningful consultation. The BBC had consulted with members and unions with the result already decided, and therefore the consultation was disingenuous. It had not consulted the trustees at all.

Mr Bradbury also argued the PO should consider whether the BBC's actions taken as a whole had undermined the Implied Duties.

The BBC's case was that the only way that it could have breached the Implied Duties was if it acted irrationally or perversely. It had introduced the Cap to deal with funding pressures without any improper purpose. It had every right to implement the Cap contractually and in each case it had acted reasonably. Mr Bradbury did not allege that he had suffered any discrimination, and the consultation had been meaningful as it had led to the BBC allowing members to join the Career Average Section of the Scheme.

The PO dismissed the remitted complaint. Mr Bradbury appealed and Warren J had to consider whether this appeal had any merit.

What was Mr Bradbury's case at the second High Court hearing?

Mr Bradbury challenged the PO's remitted decision on three points.

  • The PO had taken each element of Mr Bradbury's case and considered it in isolation without addressing the central point that, taken together, the elements amounted to a breach in the Implied Duties.
  • The PO had applied the wrong test for deciding whether there had been a breach, applying a "reasonable range of responses" test instead of asking whether the BBC had treated its employees fairly in the conduct of its business.
  • The BBC had frustrated Mr Bradbury's "Reasonable Expectations" that:

    • it would comply with the Scheme rules;
    • it would honour the definitions of "Pensionable Salary" and "Basic Salary" in the Scheme rules; and
    • it would amend the Scheme rules under the terms of the power of amendment.

What did the Court decide?

Warren J dismissed Mr Bradbury's appeal.

(1) Failure to consider Mr Bradbury's issues as a whole rather than "salami slicing"

The Court considered the PO's findings on each element of Mr Bradbury's case:

  • Coercion. It was "perfectly proper" for the BBC to follow the course of action it had taken and to use a contractual agreement. The PO was right to find that although Mr Bradbury had limited options this did not amount to improper coercion given the underlying situation faced by the BBC. The BBC was entitled to impose a Cap against any other option that might be available.
  • Collateral purpose. There was no error in the PO's determination that the BBC imposed the Cap primarily due to the funding deficit. Based on the PO's findings of fact there was nothing to stop the BBC using the Cap even if this had other benefits for it.
  • Discrimination. Except in cases of extreme behaviour (which this was not), a claimant will not be able to claim a breach of the Implied Duties created by the way his employer treats a third party. Mr Bradbury did not claim that he had suffered discrimination and had no complaint on this point. Therefore, the PO was entitled to refrain from considering the wider discriminatory impact of the changes introduced by the BBC.
  • Improper and insincere consultation. The PO was correct to note that, given the substantial pension deficit, "something radical" was required and that inaction on the part of the BBC was not a practical option. In particular the PO's conclusion that the BBC did not need to consult with the trustees before consulting with the members was affirmed.

On Mr Bradbury's argument that these elements taken together created a breach, the Court held that:

  • the PO had considered and determined that, taken as a whole, these elements did not give rise to a breach; and
  • given the PO's findings on each element it would have been perverse for the PO to have decided that there had been a breach.

(2) Failure to apply the right test

The Court held the PO had applied both tests to the elements set out above, and that this was the correct approach given the Court's decision in the first High Court hearing. Therefore, there was no basis for this challenge.

(3) Reasonable expectations

On the reasonable expectations point, the Court held this was raised too late in proceedings. Even if this argument had been allowed to proceed Mr Bradbury had not provided any evidence that he had any "Reasonable Expectations". His arguments were a mix of things that would have been "Reasonable Expectations" had the BBC used the scheme amendment route, and those that were just 'expectations' that the BBC had had no part in inculcating to Mr Bradbury.

What can we learn from this case?

This is a reassuring decision for employers who are considering, or who have already taken, similar action in respect of their pension schemes. It confirms that it is possible to place limits on pensionable pay through extrinsic contracts rather than by using the power of amendment in the scheme rules.

There remains a question mark over whether these extrinsic contracts can take effect in respect of survivor benefits. On a contractual analysis, the employer has entered into an agreement with the member (and provided consideration), but not with any ancillary beneficiaries. The net effect would therefore be similar to a member commuting their own benefits in a scheme. Any survivors pension has to be calculated as if the commutation had not taken place.

It also confirms that, in practical terms, an employer facing a financial imperative to cut the costs associated with their pension scheme will be able to take this into account when deciding what to do, and not just whether the change they are proposing will have a negative effect on employees. They will obviously need to consider this but, as the Court notes, it is generally going to be a business decision for the employer provided the action taken:

  • was a response to that situation; and
  • does not impose an undue detriment to the employees affected in comparison to the other options available.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
6 Sep 2018, Business Breakfast, Glasgow, UK

Decarbonising our heat is a key component of The Scottish Energy Strategy and an essential piece of the complex matrix we must tackle if we are to meet our climate change obligations.

11 Sep 2018, Business Breakfast, Milton Keynes, UK

Join us for our next development breakfast round table event reflecting on the on-going planning discussion regarding the Oxford-Cambridge corridor and helping you consider how best to cash in on the exciting opportunities by considering the benefits of promotion and option agreements.

20 Sep 2018, Seminar, London, UK

Environmental regulation and liability have risen up the boardroom agenda over the past decade. Recent changes to environmental sentencing have brought this area of risk even more into focus.

 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions