The recent landmark judgment laid down by the House of Lords in the case of Preston v Wolverhampton Healthcare NHS Trust will be of concern to some employers. These employers have claims pending from current or former part-time workers who have either not yet been admitted to membership of their pension scheme, or have been included, but not for the full backdated service which they are now eligible to have.
Estimates from the pensions industry suggest that if all eligible employees were successful, claims could total up to £17bn. This is unlikely to be the figure in practice, especially as many eligible part-timers may not realise that they can claim.
The ruling confirmed that part-time workers wishing to bring a claim must do so no later than six months after ceasing employment, and when such a claim is upheld membership of the scheme must be fully backdated to April 8, 1976 – the date of the Defrenne judgment in the European Court of Justice.
Although the ruling has clarified the rights of many part-time workers excluded from occupational pension schemes, many others are still unsure about the validity of a potential claim.
This uncertainty springs from the very nature of part-time working. What constitutes a part-time worker? Many people, such as teachers and lecturers are employed on short-term contracts. It has been widely reported that the Lords did not extend the six-month period for the bringing of claims for backdated service. Many employers were relieved that the floodgates had not been opened for ex-employees to bring claims.
However, for some employers the news is not so good. It had been expected that the six-month time limit would run from the expiry date of each employment contract. However, the ruling makes reference to the “employment relationship”, not employment contracts, and therefore any employee with a stable “employment relationship” resulting from a succession of short-term contracts with the same employer will be eligible to bring a claim.
More uncertainty surrounds the actual definition of part-time. There is no legal definition of the number of hours a person has to work to be considered part-time. As the law stands at the moment, as long as there is a comparator – someone who does the same or a similar kind of work and who works for a longer time – the employee working fewer hours is considered part-time.
As this judgment will fall disproportionately hard on non-contributory schemes in the public sector like the NHS scheme, the local government scheme and the teachers' superannuation scheme, it may well take a further case to decide this issue to avoid the potentially huge amounts needed to fund the inclusion of eligible part-timers.
But it is not just the public sector that could be hit harder than first seemed likely. Many private sector schemes that are contributory are being optimistic if they are expecting minimal take-up from eligible employees. They may be assuming that in many cases those employees will not be able to afford to make their own back payments. But some employees may choose to borrow the money required as, depending on circumstances, it may well be financially advantageous to them in the longer term. However, at the moment many part-timers are prevented from making the full contributions required as the Inland Revenue maximum contribution rate of 15% a year would be exceeded. Rarely does a court ruling completely clarify the law and there is no exception here.