High Court backs BBC on pensionable pay cap

The High Court has ruled in favour of the BBC in a long-running challenge to its contractual cap on pensionable salaries.

19 June 2015

Last year we highlighted the case of Bradbury v BBC, which saw an employee of the BBC challenge its decision to introduce a contractual cap on pensionable salary. The High Court has once again ruled in favour of the BBC and confirmed that arrangements such as this, which alter the way salary is calculated without amending the scheme rules, are valid and do not breach an employer’s duties to its staff.

BBC v Bradbury: a reminder
This case dates back to 2011, when the BBC introduced a cap on increases in pensionable pay for active members of its pension scheme. Instead of amending the scheme rules, the BBC introduced this cap through employment contracts. Future pay increases would be conditional on members accepting that only part of the increase would be pensionable. If the member refused, they would receive no increase in their pay. Their alternatives were to join a new career average section or leave the scheme altogether and join a defined contribution scheme.

Mr Bradbury, an employee of the BBC, complained to the Pensions Ombudsman. The Ombudsman rejected his initial complaint and he appealed to the High Court on three grounds: 1) that the cap breached the scheme rules; 2) that it breached the inalienability provisions of the Pensions Act; and 3) that the BBC had breached the implied term of trust and confidence or the implied term of good faith contained in his employment contract.

The High Court rejected his appeal on the first two grounds and asked the Pensions Ombudsman to consider the third ground, because he had not previously had an opportunity to do so. Once again, the Pensions Ombudsman rejected Mr Bradbury’s complaint, on the basis that there was no breach of these implied duties.

Mr Bradbury launched a further appeal to the High Court. He argued that the implied duties had been breached in a number of ways, including age discrimination, lack of consultation and “improper coercion”. He also criticised the Ombudsman for looking at each of the BBC’s actions individually rather than considering them as a whole (a so-called “salami-slicing” approach).

The High Court’s recent decision
The High Court upheld the Ombudsman’s conclusion that the BBC had not breached its implied duties. Warren J decided that the Ombudsman was correct to look at each individual factor when considering whether the overall actions of the BBC amounted to a breach of implied terms. Indeed, he went on to state that it would be a “very surprising conclusion” to find a breach of the implied duties where no individual factor was found to be a breach. The appeal was dismissed.

Contractual caps on pensionable salary are becoming an increasingly attractive option for many employers, particularly where restrictive scheme amendment powers make it difficult to restructure benefits using the traditional route. The High Court’s decision offers comfort that a contractual approach may be valid both from a pensions and employment law perspective. The decision will also be useful for trustees of schemes where a contractual pay cap is being proposed or has been implemented, since they are being asked to administer the scheme on the basis of capped salary notwithstanding the terms of the scheme rules.

It is worth noting that Mr Bradbury had advanced a further argument that the BBC had breached his “reasonable expectations,” which was an argument considered and ultimately endorsed by the same judge sitting in a different case, IBM v Dalgliesh. However, the High Court found that it was too late to consider this point and that in any event there was no evidence that Mr Bradbury’s reasonable expectations had been breached. It will be interesting to see whether this argument is advanced in any future challenges to similar contractual arrangements.