Beware of breaching the duty of good faith to employees when making pension scheme changes - DAC Beachcroft

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Beware of breaching the duty of good faith to employees when making pension scheme changes

Published On: 17 April 2014

In IBM UK Holdings Ltd and another v Dalgleish and others [2014] EWHC 980 (Ch), the High Court recently considered the legality of the approach taken by IBM to closing two defined benefit (final salary) ("DB") pension schemes to future accrual, making future pay increases non-pensionable, and introducing a less generous early retirement policy.

The case confirms that employers need to take care in their member communications exercises when endeavouring to make scheme changes, and to have regard to members' "reasonable expectations", or employers risk breaching their:

  • Implied duty of trust and confidence to employees under employment contracts; and
  • Implied duty of good faith to employees in a pensions context (the so called "Imperial" duty).

This case is unlikely to create significant difficulties for other employers who have already closed their defined benefit schemes where they have communicated a legitimate business case for scheme closure, and consulted properly with scheme members, taking into account their reasonable expectations. However future pension scheme closure exercises may require legal advice on a number of points which have been raised by the case.

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