Equal treatment - the Preston ruling and the Fixed-term Workers Directive

1. Preston - the House of Lords ruling

The House of Lords in the Preston case on part-timer pension rights has now ruled that:

• where part-timers have been wrongfully excluded from membership of occupational pension schemes because it amounts to indirect sex discrimination, they can claim pension rights for service back to 8 April 1976 (instead of only 2 years back as stipulated in UK legislation)
• claims must be lodged with an employment tribunal within 6 months of leaving employment (and so existing UK legislation to this effect is valid).

Some key implications are:

• It is impossible to say what the precise cost to UK employers will be, but previous estimates have ranged up to GBP 17 billion.
• The confirmation of backdating as far as 1976 does not come as a great surprise given the strong steer by the ECJ on this point when they provided guidance for the House of Lords in May last year.
• The judgment in Preston does not automatically entitle part-time employees to retrospective membership of their employer's occupational pension scheme. They still need to establish that they were excluded from membership on grounds that amount to indirect sex-discrimination. This means they must establish that significantly more members of one sex than the other are affected by a particular eligibility rule.
• In addition, a defence of objective justification exists for employers i.e. that part-timers were excluded on grounds unrelated to gender although in practice it will be difficult for many employers to win this argument.
• Employers and pension scheme trustees can now expect that any tribunal claims in relation to this issue which have been stayed will now be revived. There is also likely to be a spate of new claims made to tribunals or the Pensions Ombudsman.
• It will take a number of years for the employment tribunals to deal with the huge backlog of claims lodged before 31st May 1995 (around 60,000 cases). These cases will throw up many decisions on key questions such as when can an employer successfully defend itself on the grounds that part-timers were excluded for reasons unrelated to gender?
• Even employers who now admit part-timers to their pension scheme will need to consider what action, if any, they take in relation to part-timers who have not been offered membership backdated as far as 1976.
• It is unlikely that many employers will have adequate records of pay or even service stretching back to 1976. Reconstructing this information for backdating purposes will be time consuming and best estimates will have to be agreed in some cases with the relevant employees.

2. Fixed-term Workers Directive

A consultation paper is due out in the near future on the way in which the UK will implement the Fixed-term Workers Directive which will in broad terms prohibit certain forms of discrimination against workers on fixed term contracts.

Which forms of discrimination are likely to be outlawed? We have spoken to the DTI and they told us that in the view of the Government the Directive does not apply to pay (including pension benefits). Therefore the Government has a choice as to whether the UK should extend the protection for fixed-term workers to cover pay. The consultation paper is likely to invite views on this question.

If the decision is made to include pay, the Government does not currently have power to do this under regulations because relevant primary legislation will be required. This would obviously take some time and therefore the initial regulations implementing the Directive in July this year are unlikely to cover pay but be limited to other contractual terms and conditions such as holidays, training and gym membership.

However, as has been the case with part-timers, the present Government may in time wish to go further than strictly required by Directives in prohibiting forms of discrimination by employers. The consultation paper is therefore eagerly awaited.

If you would like further information, please contact Mark Grant by e-mail at [email protected] or by telephone on +44 (0)20 7367 2325.