Capping pay for pension purposes – is this a breach of an employer's duty of good faith?

Decision

The High Court has held that the BBC’s conduct when it implemented a cap on increases to pensionable salary in its DB pension scheme did not give rise to a breach of its implied duties.

What happened?

Mr Bradbury was an employee of the BBC, playing in the BBC’s Orchestra and a member of its defined benefit pension scheme. The scheme had a large deficit and to deal with this the BBC decided to cap increases to pensionable pay at 1%. The cap was implemented contractually instead of by amending the rules of the scheme. The BBC made future pay increases conditional on an employee agreeing to the cap.

Mr Bradbury initially complained to the Pensions Ombudsman (PO), and the PO dismissed his complaint (in October 2011). Mr Bradbury appealed to the High Court, which dismissed the complaint on two grounds, but remitted the question of whether the employer’s implied duties of good faith had been breached back to the PO. The PO dismissed the remitted complaint and this current decision relates to Mr Bradbury’s further appeal to the High Court.

The High Court decided that Mr Bradbury was not improperly coerced by the BBC. Although his options were limited and he felt pressurised to make a decision, it was not wrong of the BBC to use a contractual agreement in the circumstances, or to present him with hard choices about his future public rights. It also decided that Mr Bradbury’s age discrimination claim could not succeed, given that he himself had not been discriminated against on these grounds.

In relation to Mr Bradbury’s claim that the BBC failed to consult properly about its plans, the High Court decided that, given the deficit in the BBC scheme, something radical was required and inaction on its part was not a practical option. It concluded that the consultation that the BBC carried out did not breach the BBC’s implied duties of good faith to its employees.

Mr Bradbury raised a new point that his ‘reasonable expectations’ about his pay rises being pensionable had been disappointed. The court held that it was too late to take this point, and that in any event there was no evidence put before the PO that established such expectations. There may be more to come…

Implications for employers

This decision provides reassurance for employers who have capped (or wish to cap) pensionable salary via the contractual route. Both the PO and the High Court recognised that the BBC needed to act quickly, and the steps it took were proper in the circumstances. Employers seeking to use this route need, of course, to take great care to ensure that they adopt the correct procedures in terms of implementation – if they do, this case shows that their actions will be difficult to challenge.