Legal opinion: Pensions auto-enrolment – new employee safeguards

Employment lawyer Sarah Ozanne looks at the implications of the new pensions auto-enrolment system.

The pensions auto-enrolment regime is scheduled to begin from 1 July 2012 and will ultimately apply to all employers. The regime is being phased in over a five-year period. The “staging” date on which individual employers will become subject to the pensions-specific aspects of the regime depends on the number of employees the employer has in its PAYE system on 1 April 2012. The anticipated staging date for employers with 120,000 or more employees is 1 October 2012 (although employers can elect to bring their staging date forward). Employers with fewer than 50,000 employees are not expected to be subject to the new pensions requirements until January 2013 at the earliest. However, all employers should start to prepare now as, regardless of size, they will be subject to new employee safeguards when the regime begins.

Safeguards for workers

In addition to the new requirements on minimum pension provision, the regime introduces two new safeguards for workers: “prohibited recruitment conduct” and “use of inducements”.

Prohibited recruitment conduct: The provisions on prohibited recruitment conduct make unlawful both the asking of questions and the making of statements by an employer at any point during its recruitment process that expressly state or imply that a job applicant’s success is dependant on whether or not the applicant opts out of the pension scheme.

This safeguard is intended to prevent employers from screening out job applicants on the grounds of their potential pension entitlements under the new regime. Examples of such conduct include statements made in job advertisements, questions asked at interview and terms of employment offered. Employers should also watch out for inadvertent breaches of this safeguard by, for example, including an opt-out form as part of a general application pack.

Use of inducements: The second safeguard makes unlawful the use of inducements where the “sole or main purpose” is to induce a worker to opt out of a qualifying pension scheme. The key factor is the motivation behind the employer’s actions; it is not relevant whether or not the inducement is successful. Clear breaches of this safeguard would include employers offering a salary increase or one-off payment in return for a worker opting out of a qualifying pension scheme. More tricky issues arise where an employer operates a flexible benefit scheme of which pension provision forms a part. However, this could be resolved by the employer amending its benefits scheme to make pension provision a default option.

Enforcement

Unlike most employee/worker protections, it seems that employers that fall foul of the new safeguards will find themselves subject to compliance or penalty notices by the Pensions Regulator rather than employment tribunal claims. Employees may also be eligible to bring employment tribunal claims against their employer, however, if they are subjected to detriment or unfair dismissal for asserting a right under the auto-enrolment regime. Employees will not need a qualifying period of service to be entitled to bring such claims, whereas the qualifying period for standard claims of unfair dismissal is one year (or two years for employees whose continuous service with an employer starts on or after 1 April 2012). Employers may also face claims of whistleblowing by employees if such employees believe that they have been subjected to detriment or dismissal for making a protected disclosure, for example disclosing their employer’s failure to comply with the new auto-enrolment regime. Unlike awards of compensation for unfair dismissal, awards of compensation in successful claims of whistleblowing are not capped.

Preparing for the new regime

In summary, employers that have not yet been notified of their staging date or whose staging date is not expected to be for some time should not overlook these new provisions of the regime. All employers would be well advised to use the time prior to July 2012 to ensure that they have the correct policies, practices and training in place to avoid exposure to unnecessary liability when the pensions auto-enrolment regime comes into force.

Sarah Ozanne, employment practice partner, CMS Cameron McKenna