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A game of two halves

Last week, we looked at the European Court of Justice ruling in the Magorrian case which indicated that part-timers could demand a back-dating of pension scheme membership to 1976.

This ruling, if confirmed, would potentially cost pension schemes phenomenal amounts of money and, of course, give extremely valuable pension benefits to many hundreds of thousands of part-timers.

The case revolved around the issue of sex discrimination and part-time workers as, it has been successfully argued, if the clear majority of part-timersin a particular company are women, then to discriminate against part-timers is, alb-eit indirectly, discrimination mostly against women.

The same principle applies where the majority of part-timers in a company are men. In both cases, the discrimination contravenes Article 199 of the Treaty of Rome.

We continue our consideration of this issue this week, starting with the reaction of the trade unions to the Magorrian judgment.

Sensing a major issue, a number of trade unions amassed details of 60,000 part-timers who could claim back-dating of pension rights and assisted them in formulating a claim.

It was known even then that many hundreds of thousands more potential claimants should also act.

A number of pension lawyers and commentators believed at the time that the facts of the Magorrian case should not and could not be applied to the majority of part-time workers because the European Court noted that the Magorrian claim was not for retrospection as such but rather for recognition of full entitlement to membership (in this case, as conferred by Mental Health Officer status).

Other commentators disagreed and felt that Magorrian heralds the availability of more than two decades&#39 worth of part-timer backdating claims. Much was at stake so further test cases were sent to Europe.

The lead case was Mrs Preston v Wolverhampton Healthcare. The case is commonly known as Preston v Wolves, for reasons obvious to football fans although if anyone has seen Wolves play over the last couple of seasons one might question whether football is an apt description.

Preston v Wolverhampton Healthcare relates importantly to the backdating of part-timers&#39 pension membership.

In early 1998, the House of Lords determined that the provisions of the Equal Pay Act 1970 should be applied, meaning that a claim must be made within six months of an individual leaving service and that the backdating can be awarded for no greater period than two years prior to the claim being made.

However, there was concern that UK law (that is, the Equal Pay Act) which should not be able to frustrate an individual&#39s rights as determined under European law might, in such cases, be brought into question. Thus, the Preston case was referred to the European Court of Justice. Preston 2 Wolves 1.

On May 16, 2000, the European Court of Justice announced its decision in the Preston case, dealing a potentially very damaging financial blow to pension schemes in the UK.

Although not nearly as damaging as it might have been, overall it was a victory for Preston but at least Wolverhampton managed to score an important goal (some comment-ators consider it resulted from a poor refereeing decision).

The victory to Preston stems from the ECJ decision that the part-timers&#39 claims (as Preston, although the lead case in this hearing and decision, was not the only claim to be considered) may be backdated to 1976, the date of the Defrenne judgment and the date determined for Mrs Magorrian&#39s claim.

Most newspaper reports of this decision suggested up to 60,000 part-timers could be able to justify their claims for such backdating and that the cost to pension schemes or UK employers (as, of course, it is the employers who are financially primarily responsible for ensuring a final-salary pension scheme can meet its liabilities) could be up to £17bn.

In fact, this speculation massively understates the real extent of the potential claims.

The number, 60,000, is in fact
the number of part-timer claims already submitted shortly after the Magorrian judgment, mostly by the trade unions.

There are many hundreds of thousands of current and recently departed part-timers eligible to submit claims at a potential cost to schemes well in excess of the sugges-ted £17bn.

So, a memorable victory for Preston. But the important Wolverhampton goal came as the ECJ announced a backdating claim by a part-timer must be made within six months of the date of that person leaving the service of his or her employer.

This time limit was suggested by lawyers acting for the pension schemes as being consistent with existing UK legislation and the ECJ concluded that it would not be justified to override this aspect of our national law.

Without this time limit, there would have been an open house for claims from “every part-timer who has ever been a part-timer” (since 1976, that is) and the cost to UK pension schemes would have been truly phenomenal, including death in service benefit claims.

So, what now? It should first of all be noted that there rem-ains no obligation on employers or their schemes to proactively seek out eligible part- timers and backdate their benefits to 1976.

It seems highly unlikely that any employers will do so, thereby necessitating a claim from the employee for such backdating to be granted.

It should also be noted that, although usually talked about with regards to final-salary schemes, many commentators firmly believe that the Magorrian and Preston judgments can be applied equally to occupational money-purchase schemes and, indeed, to emp-loyer-funded group personal pensions.

Moreover, where an employer&#39s pension scheme has been wound up but, while still active, should (we now know) have admitted part-timers (but did not), the part-timers&#39 claims may still succeed, with the employer having to meet the cost of the part-timers&#39 claims outside the scheme.

This is because, contrary to reporting in many publications, the illegal act of excluding part- timers is/was primarily the responsibility of the employer, not the scheme.

So, the primary claim is against the employer who, in most cases (but not where the scheme has been wound up and possibly even transferred away) would ordinarily look to the scheme assets to meet the claim.

Next, advisers should be aware that a part-timer claim will not in itself succeed unless there is evidence that the previous deprivation of benefit to the claimant amounted at least in part to sex discrimination.

This, in broad terms, means that there must have been a significant imbalance between the number of males and females in the part-time workforce and (probably) that there existed in the full-time workforce members of the employers pension scheme doing broadly equivalent jobs to the part- timers. Claims not properly brought may, therefore, fail if these conditions are not met.

Finally, there is conflict over the possible right for pension schemes which have conceded backdating of pension rights to a part-timer to require that claimant to pay backdating of members&#39 contributions, where appropriate.

On the face of it, this might seem a perfectly reasonable requirement but some commentators are referring to certain ancient equitable principles which, while permitting the person “wronged” to claim backdating of his or her rights (in this case, Preston), denies such backdated rights to the person who committed the wrongdoing (in this case, Wolverhampton Healthcare, which denied Mrs Preston the right to make contributions at the time by denying her access to the pension scheme).

This, of course, is not an issue with non-contributory schemes but for contributory schemes. I believe that settlement of claims may be delayed where the scheme&#39s claims for backdated contributions is disputed by the employee, possibly supported by a trade union. We may soon see a test case winging its way towards the House of Lords or even, ultimately, the ECJ.

The implications of the direction by the ECJ in the Preston case were contested by legal advisers to the pension schemes, who declared they were set to challenge many of the issues which appeared to many to have been settled in Europe.

On the face of it, the Preston case was set to run and run – to the House of Lords. However, within the last month, these advisers have announced they are not proceeding with their challenge.

The way is now open for part-timers to claim exceptionally valuable backdated pension benefits. Hundreds of thousands of potential claimants need – almost certainly fee-based – advice and guidance, noting the points raised in the last half of this article. If they don&#39t ask, they don&#39t get.

Next week, we stay with sex discrimination with an even more up to date development – clawback.


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