HSBC advisers Ruth Bailey and Tom Flanagan say there are lessons to be
learnt from the banking giant’s pensions settlement with its part-time
Last month, HSBC hit the headlines with the announcement that it had reached
a settlement with Unifi, the banking and finance union, over access to its
pension scheme for part-time employees.
The news came more than a year after the House of Lords judgment in Preston
v Wolverhampton Healthcare NHS Trust and Fletcher v Midland Bank plc, 2001,
IRLR 237. HSBC was originally the lead bank in these test cases and is the
first major bank to reach agreement with the union on the settlement of
The trouble started in September 1994 when the European Court of Justice
(ECJ) decided that, under EC law, the right to retrospective pension scheme
membership could be backdated to 1976. Since December of that year the
tribunals have received more than 70,000 applications by part-timers claiming
that failure to provide access to pension schemes is a breach of the Equal Pay
Act 1970 and indirectly discriminatory on the grounds of sex.
These were lined up behind a number of test cases on time limits for
bringing claims and backdating a remedy. The cases went through the UK legal
system up to the House of Lords, across to the ECJ and back to the Lords in
Following the House of Lords’ judgment the next phase of the cases is due to
be heard in June and July this year. It could take another six years to put
these cases to rest if all of the defence points are taken, including the
argument that the differences were objectively justified. However, now that the
House of Lords has clarified the preliminary issues of time limits, it is
likely that many others will follow in HSBC’s footsteps.
The fact it has taken more than a year to reach settlement is an indication
of the complexities involved.
Circumstances and pension scheme provisions will differ between employers
(for example, the HSBC case did not involve the added complexity of a
contributory scheme) but it is possible to extract some practical guidance from
HSBC’s case on some of the issues an employer might meet in trying to settle
Assessing potential liability
It is first necessary to establish not only how many individuals have
brought claims but also how many are still entitled to bring claims because
they are still employed or were employed within six months of an agreed cut-off
date (for instance, six months after the House of Lords’ decision).
Ideally, this would be a simple process of checking employment records and
identifying those who worked part-time during the relevant periods. However, it
is highly unlikely that employers will have kept comprehensive employment
records dating back to 1976.
To avoid duplication of work at a later stage, it is a good idea to compile
as much information from the outset about each employee’s employment history,
including breaks in service etc, as this will be necessary to establish whether
an individual has a valid claim. One way of doing this is to produce and
circulate (to employees who have completed part-time service at some stage) a
standard questionnaire that will gather all the necessary information.
One apparently obvious question is whether the employee has brought a claim
in the employment tribunals. Due to the large volume of claims presented to the
tribunals in December 1994, inevitably, some have slipped through the net and
there may well be claims against an employer of which it is not aware.
Information from employees must then be verified by and combined with any information
employers may have to place individuals provisionally in various categories.
This will give a rough estimate of the cost of settling either all claims or
various categories of claims.
The obvious categories are those who have brought claims in time and those
who have not, but this could be broken down further, for example, by separating
those who are still in employment and those who left employment less than six
months ago and who could still bring claims. There could be more categories,
perhaps relating to different types of part-time workers, but this will vary
from employer to employer.
The employer will want to establish how much settlement could cost and
whether there will be a cost to the employer in providing funds to the pension
scheme to cover backdated access for all those with valid claims. This initial
costs assessment could affect how flexible an employer can be during
negotiations in letting claims ‘through the net that may technically not fall
within the House of Lords judgment. It could even have an impact on whether an
employer decides it is worth pursuing the objective justification defence.
Throughout this process, it may be important not to raise expectations or
give a firm commitment that claims will definitely be met. This can be
presented positively, if negotiations on the type of issues set out below are
Some of the issues being considered at the forthcoming hearings have not
been included below and separate consideration will need to be given to whether
employers should agree a way of settling them now or await the outcome of the
– Claims Will the agreement cover only claims registered with the
tribunals (some claimants thought they had lodged claims but they were never
actually registered) or those ‘claims’ submitted directly to an employer,
perhaps by letter or as a response to any questionnaire used to assess
liability? What about possible future claims? Is there a ‘finite universe’?
– The six-month time limit How stringently will this be applied? It
may depend on the funds available. The rationale behind the time limit is, of
course, to prevent the unfairness of being indefinitely liable for previous
acts – especially as, in many of these cases, HSBC and other employers were not
in breach of UK law as it stood at the time. The approach could also depend on
when (or if) you gave complete access to the pension scheme to part-timers.
– The types of employees/workers that will be covered Over the years,
employers may have had many different types of relationship with individuals
and it is important to agree which of these will be counted. The highly
contentious issue of employment status could be a sticking point in
negotiations; pragmatic compromise may be the only way to resolve these issues.
– Breaks in service The strict application of Preston and Fletcher
means that where there has been a break in service since the period of
part-time employment to which the claim relates, and the claim was not brought
within six months of the end of that earlier period, the claim could be out of
time. However, there may be reasons behind the break in service that produce an
unfair result if this principle is applied across the board. This issue is
linked to that of employment status so, again, pragmatic compromises may unlock
– Opt out If employees could have joined the scheme but chose not to,
should they be excluded? Logic suggests they should because any discriminatory
act of the employer could have stopped with that choice – depending on whether
the choice itself was ‘tainted’ with discrimination.
– Additional hours Where the part-timer worked hours over and above
her normal working hours, will these be included in calculating the level of
her retrospective pension entitlement?
– TUPE transfers These issues are to be determined in the June/July
hearings. However, if you do not wish this to prevent settlement at this stage,
you could perhaps carve these claims out of any settlement agreement until the
TUPE test cases are finally determined, or agree to include them as any other
normal claim. This will affect employees who were transferred in but have
claims, on the face of it, against former employers; and those transferred out
with claims relating to periods with you.
– Contributions If employees would have been required to contribute
to the pension scheme had they been allowed access, they may be required to pay
backdated contributions with interest. Chances are that many affected employees
do not have the funds to make these payments. It may be appropriate to consider
a way of receiving these funds by instalments or possibly agreeing that they
pay a proportionately smaller pension payment. You might consider a funding
– Discretionary pension schemes Will the employee be better off under
her new entitlements or under the discretionary scheme? The employer could
produce statements of entitlement under both schemes so employees can make an
informed choice about which scheme they wish to belong to. If they choose the
new arrangements, they may have to repay an element of the earlier benefit if,
for instance, it was paid in a lump sum, with interest.
– Interest The rate of interest to be used in any pension
calculations will have to be agreed. This could be the rate that has always
applied to the pension scheme funds.
– Deceased applicants Arrangements for making any payments of
retrospective benefits will have to be established. It may be a question of
looking at the pension scheme rules, or ascertaining who is receiving benefit
from the pension if any was being paid to the applicant before death.
– Men Whether men should be included is also an issue being heard at
the hearings. There may be no male applicants but if there are, will they be
covered by any agreement or will settlement of these claims await the final
determination of the outstanding test cases?
– Overlap A number of these issues overlap and, in any event, it
would be preferable to keep them all open until full agreement is reached on
Calculation of benefits
The remedy for any successful applicant will be retrospective access to the
pension scheme but the actual benefit an applicant will receive will depend
upon her status at the time claims are settled. Current employees will be
entitled to any additional benefit on retirement.
However, employers also need to consider arrangements to provide benefits
for any deferred or current pensioners, or former employees who transferred a
pension value to a new employer, so they will receive the amount they would
have received had they been entitled to the pension scheme originally.
Settling individual claims
Although an employer may reach agreement with a union, it will still have to
investigate and resolve each claim individually.
If the employer has more than a few claims to resolve, it would be a good
idea to set up a process for handling claims that includes thorough
investigation of the facts to ascertain whether an applicant’s claim falls
within any settlement reached, together with a procedure for reviewing any
Other practical considerations are how to make offers to applicants to
settle claims, how to reject claims and deal with disappointed applicants, and
the withdrawal from or strike out by the tribunals. The tribunal may agree to
produce a list of all claims registered against an employer on its systems so
the employer can ensure it is aware of all outstanding claims.
It should be a condition of any offer for retrospective access to the
pension scheme that the applicant withdraws her claim. This could be made
easier for the employer if it provides the applicant with a withdrawal form to
sign to be sent to the tribunals. If an applicant has lodged duplicate claims,
both these claims should be dismissed.
As for out-of-time claims, the tribunals operate a system of asking
applicants to show cause why their claims should not be struck out. If an
applicant refuses to withdraw her claim, the tribunal is likely to assist, if
it has not already, by implementing a procedure for the claim to be struck out.
This should then be the end of the process.
Tom Flanagan is managing partner and Ruth Bailey a solicitor in the
Employment and Pensions Group at Stephenson Harwood. The firm acted for HSBC
(formerly Midland) in Fletcher v Midland Bank plc
find out more…
on part-timer pension test cases at
Preston and Fletcher: the legal issues
The Equal Pay Act 1970 time limits,
modified by the Occupational Pension Schemes (Equal Access to Membership)
Regulations 1976, were:
– Employees can bring a claim during or within six months after
the end of the relevant employment
– Access to the pension scheme is limited to two years prior to
date of the claim.EC law leaves time limits to member states provided
– It is not excessively difficult or impossible in practice to
exercise EC rights; and the limits are no less favourable than
other similar domestic rights
The Employment Tribunal, Employment Appeal Tribunal and Court
of Appeal held that both the six-month time limit and the two-year backdating
limit were lawful. The House of Lords referred the time limits issue to the
ECJ. The ECJ held:
– The six-month time limit did not render EC law rights
impossible or excessively difficult to exercise; as long as it was not less
favourable than similar actions under national law, the time limit was lawful
– The two-year backdating limit was unlawful
The cases were then remitted back to the House of Lords to
decide what time limits to apply in the UK. In February 2001, the House of
– Claims had to be brought during or within six months after
the end of the relevant employment (as had been UK law all along), and
– Access to pension schemes could be backdated to the date on
which employment started or 8 April 1976, whichever was later (the House of
Lords putting into effect the ECJ’s decision that UK law had been wrong in
limiting access to two years before the date of the claim)
Government proposed an amendment to the Part-Time Workers (Prevention of Less
Favourable Treatment) Regulations 2000 to ensure compliance with the House of
A tribunal can only order the remedy to be backdated for two
years. This time limit was originally included to ensure consistency with
existing equal pay and pensions legislation.