IBM United Kingdom Holdings Ltd & Anor v Dalgleish & Ors (Rev 2)

An employer’s implied contractual duty of trust and confidence may be breached by a package of measures viewed cumulatively. Pension-related agreements procured in breach of that duty may affect the contractual terms governing salary increases, but the unlawful non-pensionability term may be severed while the salary increase remains effective. Salary increases were therefore retained and treated as pensionable subject to earlier partial non-pensionability arrangements.

An exercise of an employer’s pension-scheme power in breach of the Imperial duty is ordinarily voidable rather than void. The exclusion notices could be avoided individually and were set aside in their entirety. Financial remedies may be available for breach of the contractual and Imperial duties. A defective consultation may also support contractual remedies where it seriously damages trust and confidence.

The claim arose from Project Waltz, a package of changes to IBM’s defined-benefit pension arrangements. The proceedings concerned non-pensionability agreements, exclusion notices terminating pensionable service, changes to early-retirement policy, an early-retirement window, redundancy programmes, consultation, and hybrid deferred benefits.

The judgment followed an earlier judgment dated 4 April 2014 and a clarification judgment dated 13 June 2014. Further submissions concerned the legal effect of the earlier findings and the remedies available to members and the trustee.

The central issues were whether the relevant measures were valid, void, voidable or unenforceable; whether members retained salary and pension benefits; whether pensionable service continued; and what damages, equitable compensation or other relief was available.

1. Non-pensionability agreements. The agreements were not themselves contracts creating enforceable rights and obligations. Their terms could nevertheless be incorporated into salary offers and accepted as variations of employment contracts. Members who sent clear protest emails had not agreed to the non-pensionability term. For other members, the term formed part of the varied contract, but could not be relied upon by IBM because it had been procured in breach of duty.
2. The salary increases were not the whole or substantially the whole consideration for the employment variations. Applying the severance principles discussed in Marshall v NM Financial Management Ltd [1995] 1 WLR 1461, the non-pensionability term was invalid and severable. Members retained the increases for the past and future. The 2006 partial non-pensionability arrangements continued to apply, so increases were divided into pensionable and non-pensionable elements in the ratio 2:1.
3. Exclusion notices. The Imperial duty operated as a restriction on the manner of exercising the exclusion power. A breach made the exercise voidable, not void. The notices could be avoided by individual members. They were not severable into valid and invalid temporal components and were set aside in their entirety. Fresh notices would be required to terminate pensionable service prospectively, following further statutory consultation.
4. Remedies. Damages were available in principle for breach of the contractual duty of trust and confidence. Equitable compensation was also available in principle for breach of the Imperial duty. The contractual and Imperial duties could coexist, although double recovery was to be avoided. Damages would require a fact-sensitive assessment of what IBM was likely to have done consistently with its duties, rather than assuming the least beneficial lawful outcome.
5. Early retirement and redundancy. The Old ER Policy should have continued until 31 March 2014 and applied to all relevant pension. Voluntary and compulsory redundancy could constitute retirement under the rules. Voluntary redundancy was retirement with IBM’s consent. Compulsory redundancy was retirement with consent only if the members’ reasonable expectations extended to compulsory redundancy, which was not established on the evidence.
6. Consultation. The consultation breach was capable of supporting contractual damages. The statutory consultation regime did not displace the contractual duty. If future measures formed part of Project Waltz, further consultation would be required before implementation.

The judgment clarified and supplemented the court’s earlier judgment dated 4 April 2014 and short judgment dated 13 June 2014. No appeal decision is stated in this judgment.