The Court of Appeal has overturned a judgment by the High Court and ruled in favour of IBM in a case concerning changes to the company’s pension schemes.

In 2004 IBM introduced a package of pension changes known as Project Ocean, which resulted in member contribution rates increasing for contributory DB plans and a reduction in the accrual rate of non-contributory DB plans. This was followed by more reforms, completed in 2006, known as Project Soto, which gave members the option to remain in the DB scheme with a lower accrual rate or move to a DC scheme.

Crucially at the time, members were told that IBM had no further plans to make changes to the pension arrangements. However, in 2009, it introduced Project Waltz, which proposed the closure of all DB plans to future accrual, as well as several other plans.

This led to a High Court ruling in 2014, IBM v Dalgleish and others, in which Mr Justice Warren ruled in favour of the members that IBM’s 2009 proposals were in breach of its duty of good faith to members. Sackers associate director James Bingham explained that the original decisions were founded on the idea of Reasonable Expectations. The fact that members had been given expectation during previous pension changes, had greater weight over other factors.

However, the Court of Appeal has found that the approach of Reasonable Expectation is wrong.

Explaining how the Court of Appeal has ruled, Bingham said: “Those expectations, whilst not irrelevant, and certainly something that should be taken into account, do not have any greater weight than any other factor that a company takes into account when making business decisions of this nature.”

He added: “I think it is an interesting case and is clearly a good result for employers, as it provides a degree of clarity in terms of the approach that employers can take to these kinds of exercises. They have greater certainty that member expectations, whilst not irrelevant, are not something that they have to be as concerned about, as they would have been under the first decision.

In addition, Ashurst pensions lawyer John Gordon said: "Employers will be breathing a sigh of relief after this ruling. They were worried that anything they said to employees could be taken down and used in evidence against them in court. ‎

“They will be more relaxed now that the Court of Appeal has decided that ‎workers can't treat every employee communication or statement made by a manager as an everlasting contractual promise entitling them to enhanced employment and pension rights. It may now be difficult for workers to claim rights in these circumstances."

Share Story: