European Court of justice decides in favour of part-timers

The European Court of Justice has this morning (16 May 2000) delivered its judgment in the case of Preston v Wolverhampton Healthcare NHS Trust and Others. This was the test case of the 60,000 or so cases currently pending before Employment Tribunals and was referred to the European Court of Justice (ECJ) from the House of Lords on the issue of whether domestic time limits in the UK concerning claims from part-timers for access to occupational pension schemes are contrary to Community law.

In a victory for part-time workers, the ECJ has ruled that UK legislation limiting the backdating of membership to two years is incompatible with Community law. The ECJ has not said that membership can be backdated as far back as 1976: it was not asked to rule on this question. However, in the light of the ECJ’s reasoning and previous decisions, it is possible that the UK courts may order backdating to 1976.

The Decision

The time limits concerned are set out in the Equal Pay Act 1970 (EPA). Although the EPA is not directly concerned with pension rights it was argued that it is the most analogous UK statute to the claims that part-time members are bringing. This is because their claim is based on Article 119 of the Treaty of Rome (now known as Article 141 EC) concerning equal pay for men and women which is what the EPA covers.

A time limit is invalid if: (a) it renders virtually impossible or excessively difficult the exercise of Community law rights (the effectiveness principle); or (b) it is less favourable than under similar actions of a domestic nature (the equivalence principle).

The ECJ has ruled today that: (1) the 2 year limit on back-dating in the EPA is invalid because it breaches the effectiveness principle (2) the 6 month limit under the EPA on lodging a claim after the discrimination ends does not breach the effectiveness principle, but it is for the national court to decide which domestic time limit is compatible with the equivalence principle. Possible time limits against which the House of Lords may judge the 6 month limit in the EPA range from 6 years for breach of contract to 3 months (with a discretion to extend) for Sex Discrimination Act claims.

Implications

If the House of Lords decides that claims for backdated membership from part-time workers can be made back to 1976 this will have serious consequences for employers with occupational pension schemes. The cost of claims could run into billions of pounds. 1976 is a possible long-stop date on claims because it was the date of the decision of the ECJ in the case of Defrenne v Sabena in which it was decided that Article 119 could be relied on directly by individuals without the need for domestic legislation enacting it (but not for periods before the date of the ruling - 8 April 1976).

The House of Lords must also decide on the most suitable limit on how quickly claims must be lodged.

Once it is established that an employee’s claim is not time-barred, it will still be necessary for them to show that they have been discriminated against on grounds of sex. This will be a matter of statistical analysis between the proportion of part-timers who are women compared to the workforce as a whole.

Even if discrimination can be demonstrated it is still possible that some employers may claim that any discrimination was "objectively justified” on the grounds that admitting part-timers would have been administratively inconvenient. This is effectively saying that the administrative cost and hassle of allowing these members to join was not justified by the low level of benefits that they could have accrued. Such a defence may be difficult to establish.

If a part-timer can establish that she has been discriminated against and claims years of back service, schemes which are contributory can require the employee to pay contributions in the normal way. For some individuals, paying significant arrears of contributions may put them off seeking backdated membership but for the majority, particularly those near retirement age, it is likely that the cost of any contributions will be significantly less than the pension benefits that they will secure. Some part-timers may even look at short-term loans to finance their contributions and then use their commuted lump sum to pay it off as soon as they retire.

As well as the financial consequences for occupational pension schemes, claims by part-timers are also likely to lead to administrative difficulties if schemes need to establish whether claims from part-timers dating back as far as 1976 are valid. This will depend upon the accuracy of employment records. Employers will need to establish whether the amount of back service claimed is accurate and then secondly work out the correct level of contributions that should be paid. This could be an administrative nightmare and in many cases educated guesses will have to be made.

For further details please contact Mark Grant (Tel 020 7367 2325 / e-mail [email protected]), Nigel Moore (Tel 020 7367 3405 / e-mail [email protected]) or your usual contact in the Pensions Team.