UK: Future Pension Losses - Griffin V Plymouth Hospital NHS Trust

The Court of Appeal has recently conducted an interesting analysis of the proper approach to calculating damages for lost career, namely the assessment of future loss of earnings and pension benefits. The case in question, Griffin v Plymouth Hospital NHS Trust saw the Court of Appeal overruling both the Employment Tribunal and the Employment Appeals Tribunal on the methodology for calculating pension loss in a final salary pension scheme. This all came about because of the appellant's constructive unfair dismissal.

Background

Ms Griffin, aged 34 and an employee of Derriford Hospital, Plymouth was a bone densitometrist. She had fallen ill in 2007.  Unable to work because of her condition, she subsequently resigned in 2009 claiming both constructive unfair dismissal and disability discrimination. The main thrust of her original claim to the Employment Tribunal was that Plymouth NHS Trust¹ had failed to make reasonable adjustments to facilitate her return to work. Ms Griffin was successful in both claims (constructive unfair dismissal and disability discrimination) and the Employment Tribunal assessed her future loss of earnings on the basis of her finding an alternative job within a year of the hearing. Her pension loss was calculated using what is known as the "simplified approach". This calculates pension loss on the basis that, effectively, the employee would be able to enter another open final salary scheme. The Employment Tribunal awarded Ms Griffin compensation of £105,643, assuming she would work reduced hours because of her illness. However, not satisfied at the level of this award, Ms Griffin appealed to the Employment Appeals Tribunal who in turn referred the decision back to the Employment Tribunal. This resulted in the level of compensation being increased to £166,595. 

2003 Compensation for Pension Loss Guidelines ("the Pensions Guidance")

The increase in compensation following the Employment Appeals Tribunal referral reflected an adjustment to Ms Griffin's loss of earnings only. The pension loss calculation remained the same with both Tribunals agreeing that the "simplified approach", as set out in the Pensions Guidance, was correct. Ms Griffin contended differently - that the "substantial loss approach" should be used. The Pension Guidance limits the use of the substantial loss approach to cases in which: (i) the employment had continued for a considerable time; (ii) the employment was very stable; and (iii) the employee had reached a certain age where she was less likely to move on. Not satisfied with the level of compensation awarded, Ms Griffin appealed again to the Court of Appeal.

Court of Appeal's decision

The Court of Appeal dismissed her appeal on future loss of earnings issues. The main issue for them was whether it had been an error of law to use the simplified approach to pension loss instead of the 

"substantial loss approach". Note however, that the purpose of the judgment was not to overhaul the Pensions Guidance (which had received criticism to the extent that some regarded is as outdated). 

In this Court of Appeal judgment, Underhill LJ stated that in a final salary scheme the employee's entitlement is to the benefits in the scheme in question and not to employer's pension contributions. The loss takes the form of loss of enhancement to accrued pension rights and loss of future pension rights. For the loss of enhancement, actuarial tables are provided in the Pensions Guidance. Only the loss of future pension rights is affected by the choice between the simplified and substantial loss approaches. The essential difference between the two approaches is that when assessing pension losses arising in the period after termination of employment, the simplified approach measures loss by reference to the employer's pension contributions, regardless of whether to a final salary scheme or not. The substantial loss approach requires the use of actuarial tables and assumes that final salary benefits will feature. 

Underhill LJ criticised the Employment Tribunal for rejecting the substantial loss approach solely on the basis that when considering whether Ms Griffin had been in the NHS Trust's employment "for a considerable time" it said that factor did not apply where Ms Griffin, aged 34, was still a long way from retirement. The Tribunal had failed to address the question of how likely it would be for Ms Griffin to remain in employment until retirement. On the facts of this particular case, he pointed out that Ms Griffin was an employee with a specialist skill for which the NHS was probably the sole (if not only) market. It was therefore likely that she would have remained in the NHS for her entire career despite being only 34 years old. Furthermore, her medical condition made her cautious about embarking on a major career change. 

Underhill LJ also observed that the Employment Tribunal had found that Ms Griffin would have obtained employment with the benefit of a final salary pension scheme after four years, but had not relied on that factor when dismissing the substantial loss approach. The Court of Appeal considered that the Tribunal had had no proper basis for rejecting an expert's unchallenged evidence that it was unlikely that any future employer would offer a final salary scheme as most of these are closed to new entrants. 

The Court of Appeal held that the Employment Tribunal misdirected itself in the reasons it gave for applying the simplified loss approach and that in the particular circumstances of the case and in light of other findings, the only correct conclusion was to apply the substantial loss approach. The parties were therefore invited to reach a compromise on the pension loss figure. Underhill LJ also commented that the Pension Guidance was in urgent need of review as a matter of priority – since 2003, there have been many changes in pension law, and with many more to come, it's fair to say the Pension Guidance is very out of date.

Wedlake Bell comment

Final salary pension scheme membership is becoming a rare thing (in the private sector at least!). Money purchase is king. With this in mind, we expect employers to argue that those parts of the Pensions Guidance supporting substantial loss should be ignored since this approach assumes final salary benefits will feature in a claimant's future remuneration package.

Public sector workers are becoming more and more aware of the very valuable pension rights which they enjoy, which they simply cannot replicate elsewhere. Therefore, there are very many incentives for public sector employees to litigate aggressively on pension issues.

Footnote

1.[2014] EWCA Civ 1240

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