Ministry of Justice & Anor v Merry

For a pension scheme, “basic pay” is pay due for obligatory contractual working hours. This requires an obligation on the employee to work and a reciprocal obligation on the employer to provide work or pay for those hours.

The concept is not confined to a fixed number of specified hours. Work described or paid as overtime may nevertheless form part of basic pay where it is contractually obligatory. The contractual character of the work, rather than the payment rate or label, determines whether remuneration is pensionable.

Mr Merry’s employment with HM Court Service ended by reason of redundancy in 2008. His original contract provided for weekday working, but it was varied so that he was required to work a reasonable number of weekend hours as Technical Lead on the Libra Project. He was paid for those hours at an overtime rate.

The High Court, HHJ Pearce sitting as a Deputy Judge, held that the weekend remuneration was “basic pay” under paragraph A2(2)(a) of the Principal Civil Service Pension Scheme and therefore formed part of his pensionable earnings for the purposes of the Civil Service Compensation Scheme and future pension payments. The Ministry of Justice and Cabinet Office appealed, arguing that basic pay was confined to remuneration for precisely specified hours.

1. The appeal was dismissed. The High Court was entitled to find that Mr Merry’s contract required him to work, and his employer to provide work or pay him, for a reasonable number of weekend hours.

2. Under paragraph A2(2)(a) of the Principal Civil Service Pension Scheme, “basic pay” means pay due in respect of obligatory contractual working hours. The concept requires reciprocal contractual obligations: the employee must be obliged to work, and the employer must be obliged to provide work or pay for those hours even if no work is provided. It distinguishes basic pay from genuinely non-obligatory overtime.

3. A contractual term need not specify an exact number of hours to be effective. A requirement to work a reasonable number of weekend hours was sufficiently certain because the parties had acted on it for years and a court could determine reasonableness by reference to the employee’s interests and the employer’s requirements.

4. The fact that weekend work was paid at an overtime rate did not determine its legal character. The rate fixed the amount payable per hour; it did not show that the hours were non-contractual or constituted overtime.

5. The proposed restriction to fixed hours was rejected as arbitrary and inconsistent with the wide variety of employment contracts covered by the scheme. Paragraph A2(4) was a residual provision and did not assist in defining basic pay. The Superannuation Act 1972 and the scheme were to be approached as legal instruments, but the natural meaning of paragraph A2(2)(a) was decisive. Article 119 EC, the 1980 Civil Service Code and the PCSPS Manual did not alter that conclusion. The domestic authorities, including Tarmac Roadstone Holdings Ltd v Peacock [1973] 1 WLR 594, Lotus Cars Ltd v Sutcliffe [1982] IRLR 381 and Driver v Air India Ltd [2011] IRLR 992, provided only limited support by illustrating the distinction between obligatory normal hours and overtime.

• Court of Appeal (Civil Division): The appeal was dismissed. [2018] EWCA Civ 2461.
• High Court of Justice, Queen’s Bench Division, Manchester District Registry: HHJ Pearce held that the weekend remuneration was basic pay, awarded compensation under the Civil Service Compensation Scheme and granted declaratory relief concerning pension payments.