UK: Put A Lid On It! Caps To Pensionable Salary In Return For Future Salary Increases Do Not Breach The Employer's Implied Duty Of Good Faith

Last Updated: 22 June 2015
Article by Marcus Kealey

Last month Mr Justice Warren gave judgment in John Bradbury v BBC. This is the latest instalment in the long-running dispute between Mr Bradbury and the BBC regarding his pension rights, and follows on from the December 2013 Pension Ombudsman determination.

The issue

In this second High Court decision the key issue was whether the BBC's conduct in seeking to impose a 1% cap on increases to pensionable salary (the "Cap") through the mechanism of Mr Bradbury's pay award amounted to a breach of what Mr Justice Warren termed the "Implied Duties".

The employer's duty of good faith

Mr Justice Warren defined the Implied Duties in the following terms:

(a) The first implied duty is a contractual term implied into contracts of employment that employers will not, without reasonable and proper cause, conduct themselves in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee.

(b) The so-called "Imperial Duty" relates to the exercise by employers of powers and discretions conferred on them by the rules of a pension scheme. The appropriate test to determine whether an employer has complied with its Imperial Duty is to ask whether the employer has acted irrationally or perversely in exercising its power or discretion. An alternative formulation would be to ask  whether the employer has acted in a way which no reasonable employer would act in the circumstances in question.

  • Not a two stage test

The Implied Duties should not be viewed as giving rise to a two-stage test. Instead, the correct approach is to undertake an objective assessment in relation to the implied term read as a whole:

".... the conduct must be such as, objectively, is calculated or likely to undermine the duty of trust and confidence and must be conduct for which there is, objectively, no reasonable and proper cause."

  • Cumulative acts (which taken individually do not amount to a breach of the Implied Duties) can still together result in a breach

In normal circumstances when deciding whether an employer has breached its Implied Duties, various factors will need to be considered. The fact that none of those factors taken separately gives rise to a breach of the Implied Duties does not mean that no breach has occurred. But each factor would need to be of a type which could result in breach of the Implied Duties, if a breach of the Implied Duties by way of cumulative acts is to be made out.

The grounds for the Court's decision

Returning then to the issue, Mr Justice Warren considered Mr Bradbury's various arguments in asserting that the BBC had breached the Implied Duties by imposing the Cap. The main grounds asserted by Mr Bradbury included:

  • Disappointment of Mr Bradbury's reasonable expectations

Mr Bradbury sought to argue that he had various reasonable expectations as to what would happen in the future based on the BBC's prior conduct. His expectations included expectations that the Scheme Rules would be complied with, that the definitions of "Pensionable Salary" and "Basic Salary" in the Rules would be honoured, and that if the BBC wished to amend the Rules it would so by following the procedure set out in the Rules. Finally, any amendment to the accrual rate would be effected by an amendment to the Scheme's Trust Deed not by contract.

Mr Justice Warren dismissed Mr Bradbury's expectations argument for two reasons. First, Mr Bradbury had not evidenced his expectations before the Pensions Ombudsman, so he could not then seek to introduce them in his appeal before the High Court. Secondly, even if Mr Bradbury could make out such expectations, no breach of those expectations had occurred on the facts. At best, Mr Bradbury could assert "mere expectations" (not engendered by the BBC) which were insufficient of themselves to result in a breach of the Implied Duties.

  • Alleged improper coercion

Could Mr Bradbury be said to have been forced to make a particular decision as a result of illegitimate economic duress applied by the BBC? Neither the Ombudsman nor Mr Justice Warren thought so – Mr Bradbury had options (even if they were limited) and in obliging Mr Bradbury to make difficult choices, the BBC was not acting improperly or applying improper coercion.

  • Collateral purpose

Mr Bradbury asserted that the terms of the Cap allowed the BBC to achieve the collateral purpose of creating a more dynamic workforce by making the BBC's scheme look less attractive to long-serving and under-performing staff, thereby encouraging them to leave the BBC.

Mr Justice Warren did not expressly rule on this point because of concerns over the admissibility of the related evidence. Instead, he noted the Ombudsman's finding that the main purpose behind the BBC's decision to impose the Cap was to achieve a targeted reduction in the BBC Scheme's deficit. What Mr Justice Warren did say however was that it is not the case that a collateral purpose can never be viewed as the main purpose. Therefore, cases may arise where the incidence of a collateral purpose leads to a breach of the Implied Duties.

  • Age discrimination

It was pretty clear that the instigation of the Cap discriminated indirectly against younger members of the BBC Scheme although Mr Bradbury was not himself such a member. This posed difficulties for Mr Bradbury's argument because his claim could only be founded on the BBC's breach of the Implied Duties in his own employment contract. Even if age discrimination against another person or group of persons (of which Mr Bradbury was not a member) could be made out, this would not permit Mr Bradbury to assert that the Implied Duties were also breached in his own employment contract. Accordingly, Mr Bradbury's argument on this point also failed.

  • Consultation

According to Mr Bradbury the BBC's consultations with the Trustees were in essence a sham because the BBC had already decided to implement the Cap. The reasoning of both the Ombudsman and Mr Justice Warren is light on this point but their conclusions seem to be to the effect that, although the BBC failed to consult with the Trustees during the consultation period, the Trustees still had the option to make representations to the BBC during the period.

Further, the critical state of the BBC Scheme's finances occasioned by the significant deficit lent weight to the changes being implemented as a matter of urgency. Delays in implementing the Cap would have resulted in larger deficit payments – a scenario which it was reasonable for the BBC to want to avoid.

On the basis that none of the grounds taken individually amounted to a breach of the Implied Duties, both the Ombudsman and Mr Justice Warren had little apparent difficulty in finding that the grounds taken cumulatively did not amount to a breach of the Implied Duties. Mr Bradbury's appeal was, accordingly, dismissed.

Wedlake Bell comment

Mr Justice Warren's judgment in the case gives further guidance on how to ascertain whether an employer has breached its Implied Duties. Whether the outcome would have been different had Mr Bradbury correctly adduced evidence of his reasonable expectations and the alleged collateral purpose before the Ombudsman remains to be seen.

However, the case also indicates that the background context in which the changes were made (i.e. the size of the deficit and the need to act quickly) can assume real significance in determining whether a breach of the Implied Duties has occurred.

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.

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