Preston & Others v. Wolverhampton Healthcare N.H.S. Trust & Others and Fletcher & Others v. Midland Bank Plc

The House of Lords considered whether provisions of the Equal Pay Act 1970 (notably sections 2(4) and 2(5), as amended) and regulation 12 of the Occupational Pension Schemes (Equal Access to Membership) Regulations 1976 were compatible with article 119 of the EC Treaty. The court applied the Community law principles of effectiveness and equivalence, as explained by the European Court of Justice in its advisory judgment (Case C-78/98 [2000] ICR 961).

It held that section 2(5) (the two-year rule limiting retrospective pensionable service) and regulation 12, insofar as they prevented full retrospective recognition of service for occupational pension purposes, were incompatible with Community law: employees are entitled, subject to payment of missing contributions, to have their pension benefits calculated by reference to their full period of service back to 8 April 1976 (or the start of employment if later). By contrast, section 2(4) (the six-month referral limitation) was not incompatible: a six-month time limit does not render Article 119 rights impossible to exercise provided that the limitation is not applied less favourably than comparable domestic claims.

The court further held that a domestic action for breach of contract can in substance be a sufficiently similar comparator for the purpose of the equivalence principle and that, on the facts and having regard to the procedural context, section 2(4) was not less favourable than the rules governing contract claims. The court introduced the concept of a "stable employment relationship" for successive short-term contracts: where such a stable relationship exists, the six-month period runs from the end of the last contract forming part of that relationship; otherwise the six-month period runs from the end of each separate contract.

This consolidated appeal was brought by part-time workers seeking relief in respect of alleged equal pay and access to occupational pension schemes. The claimants challenged the compatibility of sections 2(4) and 2(5) of the Equal Pay Act 1970 (as amended) and regulation 12 of the Occupational Pension Schemes (Equal Access to Membership) Regulations 1976 with article 119 of the EC Treaty. Their aim was retrospective recognition of membership in occupational pension schemes and associated pension benefits.

The procedural posture was appellate: earlier rulings by the Employment Appeal Tribunal and the Court of Appeal (reported at [1996] IRLR 484 and [1997] ICR 899) had been the subject of a prior hearing in this House ([1998] 1 WLR 280) which led to a reference to the European Court of Justice under article 177 (now article 267). The ECJ gave guidance in Case C-78/98 ([2000] ICR 961), addressing the principles of effectiveness and equivalence and whether certain limitation rules made Community rights impossible or were less favourable than comparable domestic remedies.

Nature of the claim and relief sought:

• Part-time employees sought retrospective admission to occupational pension schemes and pension benefits calculated to reflect full service, not limited by the domestic two-year rule or by short domestic limitation rules.

Issues framed:

• whether the six-month referral limit in section 2(4) rendered the exercise of Article 119 rights impossible in practice (effectiveness);
• whether the two-year bar in section 2(5) and the corresponding rule in regulation 12 were compatible with Article 119; and
• whether domestic procedural rules governing similar contract claims were at least as favourable as those for Community-law-based claims (equivalence), including how limitation periods run where there are successive short-term contracts.

Court’s reasoning and conclusions:

• Relying on the ECJ, the House of Lords accepted that a six-month limitation period is not per se an obstacle to enforcing Article 119 rights and that reasonable limitation periods satisfy the principle of legal certainty; effectiveness therefore did not invalidate section 2(4).
• The ECJ had held and the House of Lords adopted that the two-year rule in section 2(5) and the corresponding operation of regulation 12 were incompatible with Community law because they would deprive claimants of the substantive pension rights that result from retroactive membership; accordingly those provisions could not be relied on to exclude prior periods of service (subject to payment of contributions for the omitted periods), and benefits must be calculated from 8 April 1976 or from the start of employment, whichever is later.
• On equivalence, the court identified that a domestic action for breach of contract could be a sufficiently similar comparator. Taking account of the role of limitation and the procedure as a whole, the House of Lords concluded that section 2(4) was not less favourable than the rules applying to contract claims: the six-year limitation in contract law accrues per completed cause of action and thus did not render the Article 119 procedure less favourable in practice. The court also explained how the six-month rule should operate for successive short-term contracts, distinguishing "stable employment relationships" from intermittent engagements and remitted the factual determination of which appellants had such stable relationships to the Employment Tribunal.

The court therefore granted relief in part: it disapplied the two-year restriction for pensionable service and clarified the operation of the six-month rule, referring factual questions back to the tribunal.

Appeal allowed in part. The House of Lords held that section 2(5) of the Equal Pay Act 1970 and regulation 12 of the 1976 Regulations were incompatible with article 119 of the EC Treaty and could not be relied on to exclude prior service for occupational pension purposes; pension rights must be calculated by reference to service back to 8 April 1976 (or commencement of employment) subject to payment of missed contributions. Section 2(4) (the six-month referral rule) was not incompatible with Community law provided it is not applied less favourably than comparable domestic claims; the court concluded section 2(4) did not breach the principle of equivalence and introduced the concept of a "stable employment relationship" for successive short-term contracts, remitting factual questions to the Employment Tribunal.

Employment Appeal Tribunal [1996] IRLR 484; Court of Appeal [1997] ICR 899; prior hearing in the House of Lords [1998] 1 WLR 280 which led to a reference to the European Court of Justice (Case C-78/98) and the ECJ opinion reported at [2000] ICR 961; the House of Lords decision in this appeal [2001] UKHL 5.