The latest news on the continuing saga of pension rights for part-time employees

United Kingdom
Unravelling the part timer conundrum

Neil Smith provides an update on the continuing saga of pension rights for part time employees

It is four years since the Vroege and Fisscher ECJ judgments ruled that, as pensions were to be treated as pay for the purposes of Article 119, a refusal to admit part time employees to an occupational pension scheme could amount to indirect sex discrimination. However, the ability and extent to which part timers may establish claims against employers and trustees who have refused them access to a scheme is still far from clear. In particular, the period within which claims must be brought and the period of backdated service to which employees might be entitled is still very much an open question.

The Vroege and Fisscher cases did not give part timers an unequivocal right of access to join schemes - they also had to show indirect discrimination. The test for whether indirect discrimination has occurred is threefold:

  • there is a requirement or condition which is applied equally to men and women but has a disparate effect on the sexes

  • the requirement or condition is such that the proportion of one sex who can comply with it is considerably smaller than the proportion of the other sex who can comply with it

  • the requirement or condition cannot be objectively justified on grounds other than sex

In practice it may not be too difficult for part timers to meet this test. Only on rare occasions does it seem likely that employers will be able to demonstrate that the exclusion of part timers was objectively justified (for example, if the part timers worked less than 8 hours a week, their exclusion might be justified on the grounds of administrative convenience). Further, as the vast majority of part time workers in the UK are female, any exclusion of part timers is likely to affect substantially more female than male employees.

Time limits

Employers have therefore tended to concentrate on deflecting and limiting the claims as much as possible by reference to time limits within which claims must be made and how far back claims for pensionable service can go.

In the Vroege and Fisscher cases, the ECJ ruled that under Article 119 part timers who had been indirectly discriminated against could bring claims in respect of employment periods dating back to April 1976. This was the date of the ECJ's decision in Defrenne v Sabena that Article 119 had direct effect, that is, it could be relied upon by an individual to bring a claim irrespective of whether Article 119 had been enacted in that individual's national law. However, the ECJ also ruled that, in accordance with general principles of European law, the period in respect of which claims must be made and the time within which claims must be brought should be determined by an individual's national law. The most closely analogous those limits for the relevant country should be applied, provided that those limits are not more restrictive when applied to Community law rights than they are when applied to national law rights, and do not make the enforcement of the individual's rights excessively difficult or impossible in practice.

UK legislation

In the light of the Vroege and Fisscher decisions, the Government enacted regulations with effect from

31 May 1995 which expressly laid down that the Equal Pay Act (EPA) time limits would apply to claims by part timers. These regulations have now been replaced by further regulations made under Sections 62 - 66 of the Pensions Act 1995, but still provide that the EPA time limits will apply.

Under the Act:

  • claims can be made up to the expiry of six months after an individual leaves service (s2(4) EPA); and

  • backdated membership can be awarded for a maximum period of two years immediately preceding the date of the claim (s2(5) EPA).

The UK test case

As a result of the overwhelming number of claims that were brought following Vroege and Fisscher a test case was established to deal with certain preliminary issues concerning time limits.

The resulting case, Preston v Wolverhampton, has been appealed up to the House of Lords and has now been referred to the ECJ. The Lords did confirm that even for individuals who brought claims to industrial tribunals before 31 May 1998, the Equal Pay Act set out the relevant national time limits for these purposes.

However, even though the Equal Pay Act is the relevant national legislation, the House of Lords referred to the ECJ the question of whether these time limits are compatible with European law or whether they make it excessively difficult or impossible in practice for claimants to exercise their rights. Therefore, the vast majority of existing claims will remain stayed pending the ECJ judgment, which is unlikely to be delivered before next Spring.

An indication of the likely outcome?

Two recent decisions of the ECJ may have provided some indication as to how the court will approach the Preston case.

The first was the Magorrian case which involved two mental health nurses who worked in Northern Ireland. The ECJ confirmed that the period of service that could be taken into account by part-time workers who have suffered indirect discrimination was the period since 8 April 1976, the date of the Defrenne judgment.

The ECJ also ruled in this case that Community law precluded the operation of a national law which limited the period which could be claimed to only two years before the date of claim. Therefore, on this basis, the Equal Pay Act time limit would not apply.

However, this decision may not be of general application because of its rather peculiar facts. The NHS scheme provided that persons who at age 50 had 20 years' full time service would be credited with double pensionable service for years of service over 20 years, and could also retire at 55 rather than 60. If Mrs Magorrian could only claim that two years of her service should be treated as full time service, she could not qualify for the enhanced terms at all. Accordingly, in her case, the two year rule would have made it impossible in practice for her to exercise her rights. It would give her no extra benefits. A part time employee who was simply excluded from membership would get a benefit, ie. two years' service. Therefore, it may be that this decision is very much limited to its own particular set of facts.

There has also been a recent Advocate General's opinion in the case of Levez v T H Jennings (Harlow Pools) Limited. The case involved a manageress of a betting shop in Chelmsford who was told she was being paid the same as her male predecessor. When she left employment she discovered that her predecessor had in fact earned more than her and she brought a claim under the Equal Pay Act for arrears of pay. Her employer asserted that because of the Equal Pay Act time limit she could only claim arrears of pay for the two years prior to the date of her claim.

The case was referred to the ECJ, and the Advocate General has recommended that the two year time limit should not apply and instead the normal contractual limitation period of 6 years should apply. This was on the basis that normally a claim for unpaid salary by an employee would be governed by rules of contract law, and a stricter time limit for claims relating to discrimination made it more difficult to enforce Community law rights than other similar national law rights. In addition, the opinion states that as there was no discretion to extend the Equal Pay Act time limits, it would be impossible for an individual such as Mrs. Levez to enforce her rights when facts (in this case the salary of her predecessor) were concealed from her.

It is important to remember that although the ECJ usually follows the Advocate General's opinion, it does not always do so. Further, bearing in mind the unusual circumstances in Levez, particularly the employer's concealment of the facts, this may be another case which is not of general application.

The Pensions Ombudsman

Claims made by part timers can also fall within the jurisdiction of the Pensions Ombudsman, provided that indirect discrimination can be shown. The Pensions Ombudsman made a notable impact on the rights of part timers in his determination in the Shillcock case in October 1997.

The pension scheme rules included a lower earnings limit deduction from pensionable salary. Employees earning less than the lower earnings limit were therefore effectively denied membership of the scheme. Many part timer workers earned less than the lower earnings limit and the large majority of these were female. The Ombudsman held that this denial of access was not "explicable by factors objectively justified and unrelated to discrimination on the grounds of sex" and therefore amounted to indirect sex discrimination. However, he indicated that in schemes which applied a lower earnings limit deduction for part timers he was likely to accept a proportionate offset as an acceptable way of dealing with the problem.

Although the Ombudsman has shown himself willing to use his power to determine part timer disputes, he will not be able to investigate claims which have already been initiated in industrial tribunals, at least until the tribunal has heard the case fully.

Further, for the Ombudsman to have jurisdiction, a claim must be made within three years of the occurrence of the event giving rise to the complaint. However, the Ombudsman does have power to extend his jurisdiction where he considers it reasonable that a complaint was not made within this three year time limit.

Issues still to be resolved

Until the ECJ has considered the reference in the Preston case the issue of what time limits apply to claims by part timers will remain open to doubt. If the ECJ were to follow Magorrian it could rule that claims could be made dating back to 1976, the date of the Defrenne judgment. Alternatively, if it follows Levez the normal six year contractual limit will apply. The bad news for employers and trustees is that if either of these rulings is followed the restrictive two year backdating time limit enshrined in the Equal Pay Act will not apply.

There still remains the question whether the six month time limit within which claims must be brought after leaving employment is valid. This point was not considered in either Magorrian or Levez, but it is one of the questions that the ECJ has been asked to consider in the Preston case.

In the meantime.....

Any trustees or employers who have not yet amended their scheme rules so that part timers are permitted to join should do so immediately.

Until we become certain of the extent to which claims may be made and backdated it is impossible to estimate employers' potential liability in respect of the thousands of part timer claims that are currently stayed or which may be brought in the future. As such, and until we receive the ECJ ruling in the Preston case, employers and trustees who face current or potential claims, especially those involved in industries where traditionally there has been a heavy reliance on part time workers, face an anxious wait.