Employers need to consider the effect of reduced hours on the final sum
Some of the thorniest issues employers face stem from trying to manage disabled employees fairly against the backdrop of a complicated statutory discrimination regime. They have to ensure they do not discriminate against disabled employees directly, by subjecting them to a detriment because of their disability, or indirectly, by applying a policy, criterion or practice that has a disproportionate impact on them and which cannot be justified. They must also consider making reasonable adjustments and avoid a further category of discrimination arising from disability.
The Employment Appeal Tribunal (EAT) recently provided helpful guidance for employers managing ill-health early retirement pension benefits in the case Trustees of Swansea University Pension Scheme v Williams. The case concerned how the rules of an occupational defined benefit pension scheme applied to a disabled scheme member taking early retirement.
Facts
Williams agreed with his employer that he should take ill-health early retirement at the age of 38 because of the progress of his illness. Over the two years before his retirement he had reduced his hours and salary to half that of his original full-time role through a series of reasonable adjustments which he had requested to enable him to remain in the post. Under the scheme rules, those retiring early due to ill-health were entitled not to have their pension reduced, so Williams argued that applying his reduced salary to his pension was unfavourable treatment arising from his disability and discriminatory under the Equality Act 2010.
Tribunal and EAT
An employment tribunal held that this was discrimination, but the EAT disagreed. The EAT employment judge said that just because there was scope under the pension scheme for the employer to treat someone more favourably, that did not inevitably mean that Williams was treated unfavourably. The effect of the scheme’s ill-health early-retirement provisions was to treat all disabled employees more favourably than non-disabled employees. Although some disabled employees may have qualified for what might be described as ‘even better treatment’ under the scheme if they had retired immediately and hadn’t been able to reduce their hours beforehand, that alone did not mean Williams had been treated unfavourably.
The EAT judge was also sceptical about whether the way the scheme rules had been applied to Williams was indirectly discriminatory. It was clear the pension scheme operated in favour of disabled employees compared to those who were not disabled, so there was limited scope for claiming that reasonable adjustments should be made to it. Although the case was remitted to a different tribunal, the implication was that these alternative claims would fail and that the scheme’s approach was justified.
Comment
While this decision gives comfort to employers (and trustees) regarding the lawfulness of such pension scheme rules, the law of unintended consequences may mean they should review and possibly amend their own scheme rules to limit the risk of future claims like this. The decision might encourage employees in a similar situation to not request reduced hours, preferring instead to continue working full time in order to take a pension calculated on a full-time salary, particularly if the scheme rules gives them the automatic right to receive an enhanced pension, rather than at the discretion of the trustees. Or employees might opt for a reduction in hours and salary only on the basis that this is a temporary adjustment which they may bring to an end so that their final salary for pension purposes reverts to the pre-adjustment level.
Robert Davies is an employment partner, and Gillian McGrath a senior associate, at law firm CMS
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