United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR IAN MCGLASHAN (Representative) Peninsula Business Services Ltd Riverside New Bailey Street Manchester M3 5PB
For the Respondent	MR MARK WALKER (Of Counsel) Instructed by: Solicitor to Barnsley Metropolitan Borough Council Legal Services Barnsley Kendray Street S70 2TA

SUMMARY

Claim for loss of pension rights. Need for Employment Tribunal to explain the approach it adopted and the reasons for that decision.


 


THE HONOURABLE MR JUSTICE SILBER

I. Introduction

1. After it had been determined that Mr Kevin Greenhoff ("the appellant") had been discriminated on grounds of disability and had been unfairly dismissed by Barnsley Metropolitan Borough Council ("the respondents"), an Employment Tribunal sitting in Sheffield was required to determine the compensation payable to him. By a decision sent to the parties on 6 December 2005, the Employment Tribunal held that the appellant was entitled to £6,190 by way of compensation for unfair dismissal and £56,897.48 by way of compensation in respect of his Disability Discrimination Act claim.
2. The appellant appeals against that part of the compensation, which represented his loss of pension rights for which he received £18,021.04, on the basis that the amount awarded was too low. The respondent cross-appeals on the basis that the amount awarded for this head of loss was too high.
3. We should say at the outset that we are conscious first of the great difficulties for Tribunals in ascertaining the value of the loss of pension rights and second of the careful way in which this Employment Tribunal sought to ascertain this appellant's loss.

II. The Background

4. The appellant, who was born on 13 June 1958, was employed by the respondents from 9 September 1974 until 23 February 2004. He describes his job as being that of Project Manager. The disability claim of the appellant stemmed from the fact that while suffering from depression, he was the subject of discrimination. By the time of the hearing in front of the Employment Tribunal in October 2005, he agreed that his disability had by then ceased. By trade, the appellant was an experienced joiner.
5. The findings of the Employment Tribunal were that:

(a) the respondents had a final salary pension scheme by which the appellant received 1/80^th of his salary for each year of service and his retirement age was 60 years of age;

(b) the respondents contributed 15.2% of the pensionable pay of the appellant towards his pension fund;

(c) the appellant made a contribution of 6% of his pensionable salary towards the pension scheme;

(d) the appellant was on retirement entitled to a lump sum of three times the value of his annual pension;

(e) the appellant had an 85% chance of staying in his job with the respondents until his retirement at the age of 60 in 2018.

6. The Employment Tribunal also concluded that the appellant had taken reasonable steps to mitigate his losses up to September 2004. It considered that the appellant had behaved reasonably in setting up his own company in September 2004 and that by 5 May 2005 he was ready "to go it alone" and to come off benefits. The Employment Tribunal thought that the net earnings of the appellant would at the very least match those he would have received from the respondents by the end of October 2006. Thus the Employment Tribunal were not prepared to compensate the appellant in respect of any loss of earnings after 26 October 2006.
7. It was also the conclusion of the Employment Tribunal that the appellant, who is determined to stay self-employed as a joiner in an area where they are in demand, would in the future be able to contribute to a pension scheme and to supplement the pension that he had already accrued by working for the respondent.
8. Both the appellant and the respondents put forward different figures for the anticipated annual increase which there would have been in the appellant's earnings if he had remained in the employment of the respondent. The appellant considered that the increase would be 5% per annum whereas the respondents thought it would be 2.5%. The Employment Tribunal decided to opt for an annual increase of 3%. This meant that if the appellant had continued to be employed by the respondents, his pension on retirement would have been 1/80^th x 42 (years' service) x 32,261.08, which is what his earnings would have been with a 3% annual increase. This produces a total of £16,937.68 to which the respondents contributed 15.2% of the appellant's pensionable pay, which according to the Employment Tribunal gave an annual figure of £2,574.43. Mr. Mark Walker for the respondent accepts the Employment Tribunal erred not only because the employers did not contribute 15.2% of the appellant's pensionable salary but also because this was in any event the incorrect basis.
9. The next step taken by the Employment Tribunal was to return to their conclusion that by October 2006 the appellant

"will earn at least as much and, more likely than not, more than he did with the respondent out of which he will, quite comfortably, be able to continue contributing at the rate of at least 6% towards the pension. Indeed we think even more".

10. The Employment Tribunal then considered that they should compensate the appellant for the pension by awarding him the equivalent of the sum which the respondent would have paid by way of contributions over the next seven years, which is the period they chose because it covers roughly half the period of time before the appellant is sixty. The Tribunal explained that the appellant might continue to work beyond that age or perhaps for some other reason leave earlier. Thus they multiplied the annual loss of £2,574.43 by seven years and this produce a total of £18, 021.04 which they awarded to the appellant for loss of his pension rights.

III. Grounds of Appeal

11. The grounds of appeal are that the Employment Tribunal erred in, among other ways, by;

(a) assessing the pensionable pay of the appellant as £16,937.68 and not as it should have been £32,261.08;

(b) not compensating the appellant for the reduction in his lump sum payment;

(c) failing to take account of the benefits of the appellant's contributions to the pension fund;

(d) omitting to explain why and how they chose to calculate the appellant's pension losses in the manner in which they did.

12. The respondent cross-appeals on the basis that the award for loss of pension rights was too high.
13. Not surprisingly the Employment Tribunal found the question of the calculation of loss of pension a difficult task and we have great sympathy for them in this case. During the course of his submissions Mr Mark Walker, counsel for the respondents, correctly in our view agreed with the appellant's representative Mr Ian McGlashan that the Employment Tribunal had made a number of errors. First, they had failed to consider the appellant's rights to a lump sum payment and the losses to this right that he suffered as a result of his dismissal. In our view Mr Walker is correct in accepting that point in the light of the reasoning of this Appeal Tribunal in Clancy v Cannock Chase Technical College [2001] IRLR 331 paragraph 28. This finding would in itself require the matter to be remitted to the Employment Tribunal.
14. Second, Mr Walker accepted again correctly in our view that the Employment Tribunal had not explained what approach they had adopted in relation to the quantification of loss of the appellant's pension rights. It is common ground between counsel that the basis for compensation of loss of pension rights can be calculated in a number of different ways and that it is vital that the Employment Tribunal should explain how it has calculated the compensation for loss of pension rights.
15. In the booklet "Compensation for Loss of Pension Rights/ Employment Tribunal" (which is a publication regarded by both Mr McGlashan and Mr Walker as authoritative), it is stated that:

"4.10 We consider that, in assessing future pension loss, the Tribunal has to select one of two approaches, which we will call the simplified approach and the substantial approach. As we have indicated, the decision by the tribunal as to which approach to use will be a crucial one. It has led to considerable debate in the consultation process and the final conclusion will be a matter for the tribunal. It can, however, make a substantial difference to the amount of compensation under this heading.

4.11. The simplified approach is set out in chapters 5, 6 and 7. It involves three stages- (a) in the case of a final salary scheme, the loss of the enhancement to the pension already accrued because of the increase of salary which would have occurred had the applicant not been dismissed, (b) in all cases, the loss of rights accruing up to the hearing and ( c) the loss of future pension rights. These last two elements are calculated on the assumption that the contribution made by the employer to the fund during the period will equate to the value of the pension (attributable to the employer) that would have accrued. In the case of a final salary scheme, it may be necessary to make an adjustment to the employer's contribution as discussed in section 6.5. No such adjustment is necessary in the case of a money purchase scheme because the scheme is personal to the employee.

4.12. The substantial loss approach, by contrast, uses actuarial tables comparable to the Ogden Tables to assess the current capitalized value of the pension rights which would have accrued up to retirement. There may be cases where the Tribunal decides that a person will return to a job at a comparable salary, but will never get a comparable pension see Bentwood Bros. (Manchester) Ltd.-v-Shepherd [2003] IRLR 364. In such cases the substantial loss approach may be needed even where the future loss of earnings is for such a short period. But it must be remembered that loss of pension rights is the loss of a fringe benefit and may be compensated by an increase in salary in new employment"

16. Guidance is then given in that booklet as to which of the two approaches may be adopted. An Employment Tribunal is not bound to adopt either of these approaches and in Bingham v Hobourn Engineering Ltd [1992] IRLR 298, this Appeal Tribunal held that it was not an error of law for an Employment Tribunal to fail to follow the guidance because it was entitled to conclude that in the particular circumstances, the application of the guidance would produce an incorrect or an inappropriate answer.
17. What however is important is for the Employment Tribunal to explain not only what approach it applied but also why it selected that particular approach rather than other approaches. As Bingham LJ explained famously in Meek v City of Birmingham District Council [1987] IRLR 250 at paragraph 8:

" It has on a number of occasions been made plain that the decision of an Industrial Tribunal is not required to be an elaborate formalistic product of refined legal draftsmanship, but it must contain an outline of the story which ahs given rise to the complaint and a summary of the Tribunal's basic factual conclusions and a statement of the reasons which have led them to reach the conclusion which they do on those basic facts. The parties are entitled to be told why they have won or lost. There should be sufficient account of the facts and of the reasoning to enable the EAT or, on further appeal, this court to see whether any question of law arises; and it is highly desirable that the decision of an Industrial Tribunal should give guidance both to employers and trade unions as to practices which should or should not be adopted".

18. In this case, the Employment Tribunal has not explained the reasons as to why they adopted the approach which it did and why it rejected other approaches, especially those set out in the guidance.
19. It is common ground that this case be remitted for reconsideration as the Employment Tribunal failed to consider this case properly. For that reason as well for the guidance of the Employment Tribunal. We would suggest that they approach cases of this sort in this way and in this logical sequence by:

(a) identifying all possible benefits that the employee could obtain under the pension scheme;

(b) setting out the terms of the pension relevant to each possible benefit;

(c) considering in respect of each such possible benefit first the advantages and disadvantages of applying what we have described as "the simplified approach" or "the substantial loss approach" and also any other approach that might be considered appropriate by the Tribunal or by the parties;

(d) explaining why they have adopted a particular approach and rejected any other possible approach; and

(e) setting out their conclusions and explaining the compensation they have arrived at in respect of each head of claim so that the parties and this Appeal Tribunal can then ascertain if they had made an error.

20. We do not say that this five stage approach is mandatory but if it is followed, the problems which have arisen in this case, would not have occurred. As this case has to be remitted, it is unnecessary for us to deal with other complaints that were made by the appellant and by the respondents about the approach of the Employment Tribunal because if they adopt the approach set out in the previous paragraph, any such errors will be avoided in future.
21. Mr Walker contended that this matter should be remitted to the same Employment Tribunal, which dealt with the appellant's claim earlier. We have come to the conclusion that it should be remitted to a differently constituted Employment Tribunal for a number of overlapping reasons. First, the appellant is entitled to contend (as he did) that in this case he has lost confidence in this particular Employment Tribunal because apart from the errors to which we have referred, that particular Tribunal at an earlier hearing had held that the appellant had been fairly dismissed which was a decision that was later overturned by this Appeal Tribunal. Second, a differently constituted Tribunal would still be able to take advantage of the findings of fact made by this Employment Tribunal relating to the likely earnings of the appellant both in his present work and if his employment with the respondents had continued. Third, we consider it desirable that this case, which relates to a dismissal which took place more than two years ago, should be heard as speedily as possible. Experience has shown that the commitments of members of most Employment Tribunals are such that there is always a greater delay if a case has to be remitted to the same Tribunal rather than to a different constituted one.
22. Thus, we allow the appeal and remit this case to a differently constituted Employment Tribunal in order that it can determine what compensation the appellant is entitled to for loss of his pension rights.