Court of Appeal comments on tribunal guidelines for calculating pensions loss on termination of employment - DAC Beachcroft

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Court of Appeal comments on tribunal guidelines for calculating pensions loss on termination of employment

Published On: 20 November 2014

We have already sent out a number of alerts this month. Of most significance were our alerts about how holiday pay should be calculated where workers ordinarily receive overtime. The High Court has also heard Unison's second judicial review application recently and looked at whether employment tribunal fees are lawful.


Where an employee who is a member of a final salary pension scheme is unfairly dismissed, there are two well-established approaches for calculating the level of compensation payable in respect of pension loss. These are the 'simplified approach' and the 'substantial loss approach'. Of these, the substantial, or career, loss approach leads to far more significant levels of compensation for pension loss. 


The Claimant was employed by Plymouth Hospital NHS Trust as a clinical technician. She became ill and eventually resigned 2 years later, citing the Trust's failures to make adequate efforts to enable her to return to work. The Claimant submitted claims to the Employment Tribunal for constructive unfair dismissal and disability discrimination, and was awarded approximately £105,000 in compensation.

The Claimant appealed against the level of her award on a number of points, including in relation to the way in which her pension loss had been calculated. She argued that the Tribunal had been wrong to use the simplified loss approach, and that the substantial loss approach should have been applied.

The Court of Appeal considered the circumstances in which it would be appropriate to use the substantial loss approach. It summarised the key question as 'whether the Claimant was likely to stay the course up to retirement date'. If the Claimant would have remained in employment up until their retirement had it not been for their unfair dismissal, the substantial loss approach was likely to be appropriate.

The Court of Appeal found that it was relevant that the Claimant had a specialist skill for which the only market was the NHS. This, combined with her medical condition, meant it was unlikely that she would have looked to change her employer between the date of her dismissal and retirement. This was despite the fact that she was only 34 at the time of her dismissal.   

The Court of Appeal also went on to find that the fact that the Claimant was likely to find alternative employment outside of the NHS in the future did not mean the substantial loss approach should not be applied. This was because any future job was unlikely to offer a final salary pension scheme.  

What this means for employers

This decision is a reminder to employers who operate final salary pension schemes of the potentially high level of awards for pension loss related to that scheme. The decision is of most concern for those employers who employ highly specialised employees in remote locations, where the employer is effectively the sole 'market' for those employees' skills in that location.  This increases both the prospect that an employee would be found to be likely to 'stay the course' up to retirement, and makes it far less likely that a dismissed employee will be able to obtain a new role with access to a comparable final salary pension scheme. 

However it is worth remembering that, where claims are solely in respect of unfair dismissal without any element of discrimination or whistle blowing, the statutory cap will operate to limit the impact of applying the substantial loss approach by limiting the level of any award of compensation made.