It is difficult to imagine a more favourable outcome for IBM. The Court of Appeal’s judgment is the end of the litigation road in this case, as the members have decided there is “little merit” in seeking an appeal to the Supreme Court.
Despite IBM’s success, the lengthy and costly litigation is a clear warning that employers must still take their Imperial duty to act in good faith seriously. Communicating with members in an honest and open way when scheme changes are proposed offers a less troublesome route in effecting benefit changes. It is clearly preferable to ensure that any such exercises are conducted so that members cannot argue that the contractual duty of trust and confidence between the employer and its employees is adversely affected.
The manner in which IBM carried out the consultation, and the heavy-handed way members were notified of future pay rises being non-pensionable, was a breach of the statutory duty. However, the time lapse between the implementation of Project Waltz and the Court of Appeal’s judgment and the change in economic circumstances over that period worked in IBM’s favour. This resulted in the Court of Appeal’s refusal to require the whole process to be revisited in order to punish IBM for the past breach.
While the Court of Appeal’s decision will be welcomed by scheme sponsors considering benefit changes as a means of addressing funding deficits, it remains the case that employers must consider consultations on pension scheme changes carefully. It is also essential that they allow themselves sufficient time to provide to members accurate and thorough advance communications of any intended changes so as not to fall foul of the statutory consultation requirements.
It will be a relief to employers that past member communications are not automatically legally binding and that members cannot rely on their “reasonable expectations” to unwind scheme changes. Employers should, however, be aware of the possibility that affected members may seek some form of remedy if any necessary consultation is not carried out correctly.