Ian Chapman-Curry
Legal Director
PSL legal director
Podcast
7
The duty of employers to act in good faith towards employees applies equally in relation to the way in which an employer exercises its powers under a pension scheme. In our latest podcast, we look at employers' duty of good faith when changing pension arrangements.
Imperial Group Pension Trust Ltd. v. Imperial Tobacco Ltd. [1991] 1 W.L.R. 589
IBM (UK) Holdings Ltd v Dalgleish [2014] EWHC 980 (Ch)
The duty of employers to act in good faith towards employees – a duty established in relation to employment contracts – applies equally in relation to the way in which an employer exercises its powers under a pension scheme.
A pension scheme has a term implied into it "that the 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".
The duty extends to all the members of the pension scheme, including former employees as well as current employees (as well as dependants of members of the scheme).
The Imperial case, decided at the end of 1990, has been commented on and approved by the Court on a number of occasions since it was decided. It remains good law. It was recently discussed in the IBM case (which could be subject to appeal).
The Imperial case creates an implied term in an occupational pension scheme, in relation to the employer's exercise of its powers under the scheme.
It is based on the implied term in an employment contract (already recognised in law at the time of the Imperial case) which is "that the 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".
The employment contract implied term arose from the case of Woods v WM Car Services (Peterborough) Limited [1981] IRLR 347 which was approved by the Court of Appeal in Lewis v Motorworld Garages Ltd [1985] IRLR 465.
It should be noted that the facts in IBM are considered to be unusual. The extent to which it will be followed on less "extreme" facts remains to be seen.
The employer's duty of good faith has been the subject of litigation involving IBM. At the date of preparation of this briefing, there is an appeal to the Court of Appeal yet to be heard which could change the position as set out above.
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