AGCO Ltd. & Anor v Kellaway

Whether an employee has retired at the employer’s request depends on the substance and realities of the termination, rather than its formal description. Voluntary redundancy is ordinarily a consensual process and may remain voluntary despite pressure to volunteer. It ceases to be voluntary where the employee has no real option and is compulsorily selected for redundancy. An agreement to provide voluntary-redundancy terms cannot convert a compulsory redundancy into a voluntary one. A member is therefore entitled to enhanced pension benefits available on retirement at the employer’s request only where the termination falls within that substantive category.

The employee was a member of the Agco staff pension scheme. Following a restructuring process, his post was selected for redundancy. He subsequently applied for, and was accepted under, the company’s voluntary redundancy scheme, receiving enhanced termination terms. The Deputy Pensions Ombudsman concluded that he had retired from service at the employers’ request under rule 14(c)(iii) of the scheme and awarded the corresponding pension entitlement.

Agco and the scheme trustee appealed under section 151(4) of the Pension Schemes Act 1993 on a point of law. The central issue was whether, viewed substantively, the employee’s termination was voluntary redundancy or compulsory redundancy.

1. The appeal was allowed. The employee was not entitled to the enhanced pension available under rule 14(c)(iii), because he had not retired from employment at the request of his employers.

2. The correct approach was to examine the substance and realities of the termination rather than its form. Voluntary redundancy is generally a consensual process, even where the employee faces pressure arising from possible compulsory redundancies. In exceptional cases, however, describing the termination as voluntary redundancy would misuse language, particularly where the employee has no real option.

3. On the facts, the employee had been selected for redundancy before making his application under the voluntary redundancy scheme. The possibility of alternative employment did not alter that conclusion. The later agreement to provide the terms available under the voluntary scheme, and the earlier commitment to honour those terms, did not change the substantive character of the termination. It remained compulsory redundancy.

4. The court therefore concluded that the employee did not fall within rule 14(c)(iii). The court declined to determine whether the employer’s letter of 18 December 1998 was itself an effective notice of dismissal. A notice of dismissal must be unambiguous. The court stated, obiter, that if the letter had been effective, the appellants’ alternative reasoning would have been sound.

5. The question of the form of the order was left to be addressed after judgment.

• Deputy Pensions Ombudsman: By decision dated 20 March 2007, determined the employee’s entitlement under rule 14(c)(iii) in his favour.
• High Court (Chancery Division): Allowed the appeal under section 151(4) of the Pension Schemes Act 1993.