UK Pensions: Paying for the sins of the fathers – how far back must you make up pension underpayments?


Trustees of UK pension schemes which include old guaranteed minimum pensions have got a bit of a dilemma on their hands at the moment. They have to equalise benefits between men and women to paper over the inherent inequality in the GMPs themselves, which means correcting past underpayments.  There are many questions raised by that, but the one I’m interested in now is how far back.  For many schemes it may be more of a judgment call than you think.  So what’s the issue?

If you realise that you owe someone money that you should have paid them back in the day, but at the time neither of you thought you owed it, should you now pay them the whole lot, or not?

The starting point is statutory limitation periods, introduced to satisfy the need for certainty in legal relationships. But limitation periods are purely a defence to a claim.  They don’t eradicate the underlying liability.  It’s up to the debtor whether to invoke the right not to have to pay if someone doesn’t turn up in time.  In the commercial world there are clear limitation periods and invoking them may be a simple decision unless there is a particular reason not to refuse the claim.  In pensions it’s not quite as straightforward.

Pension scheme trustees have a duty to pay the benefits due under the scheme. The trust deed may expressly say that the purpose of the scheme is to pay those benefits.  As a result I have witnessed trustees explaining to the sponsor employer that they wouldn’t invoke limitation periods if they did have to make back payments where it wasn’t the member’s fault.  In their view it was an option they had, but they weren’t going to take it because their duty was to pay the correct benefits.

Then the judge in the Lloyds Banking Group case decided that there weren’t any applicable limitation periods for GMP inequalities.  A combination of EU case law and old UK legislation meant trustees owed the lot.  However, Morgan J then used the forfeiture provisions in the various LBG schemes’ rules to apply some different limits.

Forfeiture in the pensions world is a fairly archaic legal concept. It had a few purposes but the main one was to give trustees certainty if a member didn’t turn up to collect his pension.  Instalments left unclaimed for more than six years were, or could be, forfeited to remove the need to retain assets to meet the liability.  Forfeiture is not an automatic feature.  The legislation allows scheme rules to include forfeiture but only in limited circumstances.  It depends on the individual scheme and its history whether there is any forfeiture clause at all in the governing documents and how it is expressed.

Morgan J interpreted all the LBG forfeiture clauses to apply to that part of the member’s pension that had been underpaid. I’m not going to debate the legal rights and wrongs of that approach here, but it feels a bit rough on members.  Presumably when they claimed their pension at retirement age, they thought they were claiming everything they were entitled to, and trusted the trustee to deliver correct individual instalments?

The judge’s position was that the member had not claimed the missing part of each instalment of pension, so, depending on the precise terms of the forfeiture clause, the trustees either had to treat the underpayment on each instalment as forfeit after six years, or had some discretion in the matter. Depending on the drafting, their power might be positive – only to forfeit the past underpayments on instalments if they decided to – or negative – to counteract an otherwise automatic forfeiture under the rules.

The assumption of the speakers in a recent debate on the topic seemed to be that trustees would/should always seek to counteract any forfeiture provision where possible. But why?  Forfeiture clauses provide certainty.  They act to keep the liabilities of the scheme current and capable of being valued and funded.  There is nothing inherently prejudicial to the purposes of the scheme, or to the duties of the trustees, in the concept of forfeiture.

So is the answer that GMP equalisation is special? Should trustees be making an exception for GMP equalisation back payments because realistically all the fault lay with the pension industry and not with the members?  GMPs are fiendishly complicated.  You can’t realistically expect a non-expert member to work out that he has been disadvantaged in a way that he can do something about because of a different accrual rate and benefit date for GMPs prescribed by law.  Only two members have tried it seriously before the Lloyds Banking Group case, and one was an actuary by trade (Mr Williamson in Marsh Mercer Pension Scheme v Pensions Ombudsman) and the other one clearly had a lot of help if he wasn’t actually in the pensions industry (Dr Kenworthy complaining to the Pensions Ombudsman).

I’m sympathetic to the idea that GMP equalisation should be an exception to the general run of forfeiture processes, not least because expecting members to make a formal claim even now after the Lloyds Banking Group case doesn’t feel right.  However scheme sponsors may still have something to say about a deliberate decision consciously to increase the liabilities of a scheme beyond what is actually required by the law at this point in time.

That means trustees are going to have to look hard at their scheme rules and duties to members, and talk to sponsoring employers before deciding to treat groups of members differently for the application of their forfeiture provisions. You also need to be careful not to throw the baby out with the bathwater if trying to change the drafting – forfeiture clauses are still useful and blanket changes with retroactive effect may have unintended consequences.

Just one more challenge to add to the GMP equalisation pile!

France: The complex consequences of the occurrence of gross misconduct during the notice period

The general rule under French law is that when employment contracts are terminated, employees are entitled to a prior notice period, the length of which depends on the status of the employee (executive or non-executive), their length of service, and in some cases their age.

The applicable rules are generally set by the sector-wide collective bargaining agreement (a large majority of employers in France are subject to such collective bargaining agreements).

Employees may either be asked to work during their notice period, or be released from working during it. In the latter case, they are entitled to receive their full salary until the expiry of the notice period, as if they had continue to work.

The right to a notice period is however not applicable when an employee is dismissed based on a serious or a willful misconduct, in which case the employment contract is terminated upon the date of notification of the dismissal.

It may happen that an employee whose employment contract has been terminated for reasons other than serious or wilful misconduct (for example due to a dismissal for real and serious cause) and who is working during his notice period then commits serious misconduct during the worked notice period,.

What measures can be taken by the employer in such case?

First: The employer can immediately notify the employee of the termination of the notice period, with no need to reiterate the dismissal procedure. This has been established long ago by French case law.

Second, such early termination of the notice period will obviously have financial consequences.

Naturally, the employee is not entitled to any salary for the rest of the notice period. The employment contract is terminated with immediate effect, and no further notice period applies.

However, employers have in the past tried to claim that the employee was also ineligible in such circumstances to receive any dismissal indemnity. French courts however have enunciated a principle that given that the requirement to pay dismissal indemnity is triggered by the notification of the dismissal (which in this situation occurs before the beginning of the notice period during which the employee committed the subsequent act of serious or wilful misconduct), employers are still required to pay such dismissal indemnity.

A very recent court decision has however provided a welcome complement to such position. In that case, the French Supreme Court held that although the employer was indeed required to pay the dismissal indemnity, the calculation thereof should be based on the employee’s length of service calculated as at the date of expiry of the notice period (i.e., the date on which the employee is immediately terminated due to the occurrence of the serious misconduct).

Therefore, the dismissal indemnity of an employee committing serious misconduct during the notice period will be reduced taking into account the anticipated expiry of the notice period.

Check-in for a Check-up – An Employer’s Duty to Make Inquiries

Excessive absenteeism is one of the most difficult issues facing human resource professionals today.  It is also one of the more complex areas of labour and employment law.  One of the reasons why excessive absenteeism is so complicated is because it often raises human rights implications.

The perfect example is found in Coast Mountain Bus Company and CAW, Local 111 A-227/04 (Joan Gordon) — an old case with facts still faced by today’s employer nearly two decades later.  The employer hired the employee as a bus driver in 1996 and terminated the employee in 2003 for excessive non-culpable absenteeism.  The bus driver had missed 842 days of work.  The absenteeism was caused by a variety of ongoing problems:  the flu; strained neck and shoulder muscles; depression; anxiety; insomnia; lack of concentration and volatile temper; emotional upset over a bomb threat on a bus; gastroenteritis; headache; fever; anxiety disorder; lower back pain; a gallbladder condition; and osteoarthritis.  In arguing that the arbitrator should uphold the termination of the driver’s employment, the employer relied on the driver’s past attendance record and argued that his record was not likely to improve.  The arbitrator, however, ruled against the employer and reinstated the driver finding that the driver’s past attendance record was not sufficient to prove that the driver was unable to work in the future and noting that the employer ought to have obtained better medical information and presented medical evidence with respect to the prognosis for the driver’s future attendance at work.  Although the employer argued that the driver had not requested any workplace accommodations, the arbitrator found that it was up to the employer to initiate the process and make the medical inquiries of the employee.

An employer’s duty to make inquiries of an employee when faced with red flags signaling that workplace accommodations may be required is well-established now.  Although employers sometimes may feel reluctant to make medical inquiries of their workforce for privacy reasons, the duty to accommodate in fact compels that those medical inquiries be made of an employee when faced with such red flags.  Red flags may include things like:

  • Excessive absenteeism
  • Sudden, clear changes in mood
  • Tearfulness and expressions of hopelessness
  • Withdrawing socially
  • Change in physical appearance
  • Symptoms of exhaustion
  • Unexplained deterioration in the quality of work
  • Rumours that the employee has been hospitalized or is in counseling

When faced with red flags, best practice for employers is to check-in with the employee for a check-up with their doctor to confirm whether any workplace accommodations are required for the employee and, if so, to what extent. Appropriate medical inquiries to make include:

  • Whether the employee has a medical condition affecting their job performance including their ability to perform their regular duties and work their regular schedule;
  • Whether any of the performance concerns you are seeing are caused or contributed to by a medical condition and, if so, to what extent;
  • What workplace accommodations may be required for the employee and for how long;
  • Whether the employee has been prescribed treatment for the condition and, if so, whether the employee is following the treatment as prescribed and whether the treatment may affect their effective or safe performance of their work;
  • What the employee’s prognosis is for returning to work in their position or an accommodated position, their expected return to work date, and any gradual return to work recommendations; and
  • Whether a follow-up medical appointment is required and, if so, what frequency.

Whether all or some of these inquiries are made, employers still need to recognize that dealing with chronic absenteeism may be a long term project and not all check-ins will necessarily lead to check-outs.  This is why it is important to establish a long term game plan for managing employee absenteeism in a way that is constructive, rehabilitative and flexible.

New EU rules for protection of whistleblowers

On 7 October 2019, the EU Council formally adopted the new Whistleblowing Directive that will guarantee whistleblowers EU-wide standards of protection. The Directive obliges both public and private organisations and authorities to set up secure reporting channels, so that whistleblowers can report violations of EU law as safely as possible. Member States have two years to transpose the rules into national law.

The main elements of the new legislation are:

  • Companies with more than 50 employees and national and regional administrations and local municipalities with more than 10,000 inhabitants will be obliged to set up secure reporting channels. They will have to provide a response to reports of maladministration within three months. This is extended to six months for external reporting channels and in complex cases.
  • While whistleblowers must in general use their organisation’s internal channels first, before using external channels set up by competent national authorities, they can still retain their protection if they immediately turn to an external agency in certain circumstances.
  • Under the new rules whistleblowers are protected from reprisals such as suspension, demotion or intimidation. Protection is also granted to their supporters, such as colleagues and relatives. The policy also contains a list of supporting measures to which whistleblowers must have access.
  • The new rules apply to breaches of EU legislation in a wide range of areas including public procurement, financial services, prevention of money laundering, and public health. The definition of whistleblower in the rules extends to cover a wide range of profiles: employees, civil servants at national or local level, volunteers and trainees, non-executive members, and associates.

How much time – if any – must employers provide to employees to vote in the upcoming federal election?

In light of the upcoming federal election – currently scheduled for October 21, 2019 – this is a timely reminder for employers on their statutory obligations to provide employees with time off from work so that employees may exercise their constitutionally-protected right to vote on polling day. Voter eligibility under the Canada Elections Act, or in French, la Loi électorale du Canada (the “Act”), is restricted to Canadian citizens who are at least 18 years of age.[1]

On polling day, electors are allowed three consecutive hours for the purpose of casting their vote during the following hours:

  • Newfoundland: 8:30 a.m. – 8:30 p.m.
  • Atlantic: 8:30 a.m. – 8:30 p.m.
  • Eastern: 9:30 a.m. – 9:30 p.m.
  • Central: 8:30 a.m. – 8:30 p.m.[*]
  • Mountain: 7:30 a.m. – 7:30 p.m.[*]
  • Pacific: 7 a.m. – 7 p.m.

[*] In Saskatchewan, voting hours are from 7:30 a.m. to 7:30 p.m.

If employees’ hours of work do not allow them three consecutive hours of time to go and vote during these hours, the employer must provide them with time off so that they are allowed three consecutive hours to vote on polling day.[2] That said, scheduling employees’ time to vote during work hours is done so at the convenience of the employer.

In other words, if an employee has three consecutive voting hours that fall outside of working hours, an employer does not have to provide time off to vote. Where working hours and voting hours overlap such that the employee does not have three consecutive hours off to vote, an employer may only have to make minor adjustments to create that three-hour window. Take, as an example, Eastern time where, as noted above, voting is from 9:30 a.m. to 9:30 p.m. If an employee works from 9:30 a.m. to 5:30 p.m., he or she has three consecutive hours not at work during which the polls are open. In this case, the employer is unaffected. But, hypothetically, if an employee works from 11:00 a.m. to 7:00 p.m., then the employer can choose what is most convenient for it and advise the employee that the employee may leave 30 mins early with pay that day to get to the polls. Doing so will provide the employee three consecutive hours. That may be much less costly option for the employer than say allowing the employee a 3 hour window in the morning and showing up for work at 12:30 p.m.

Under the law, no employer may make a deduction from the pay of or impose a penalty to an employee for lawfully taking time away from work to vote. Moreover, the Act specifically prohibits employers from interfering, by intimidation, undue influence or by any other means, with an elector’s right to have three consecutive hours to vote on polling day.

Employers who do not comply with the above-noted requirements run the risk of facing significant fines or imprisonment, or both.

Additionally, some workplaces may have either HR policies or (in unionized workplaces) a collective agreement that provides for an even greater leave entitlement than the minimum stipulated under the Act. If in doubt, check with your HR department.

[1] Canada Elections Act, SC 2000, c 9.

[2] This does not apply to employees of a company that transports goods or passengers by land, air or water who are employed outside their polling division in the operation of a means of transportation, if the time off cannot be allowed without interfering with the transportation service.

Death during sexual intercourse qualified as a work-related accident

During a business trip to a construction site, an employee was found dead of a heart attack in a room after having had sexual intercourse with a “complete stranger” he met during the day. The employer completed the usual formalities by informing the social security authorities of the death and the circumstances. The social security authorities decided to treat the death as being work-related, which was contested by the employer.

The company’s arguments before the Paris Court of Appeal were as follows:

– the employee’s death occurred when he had knowingly interrupted his mission for a personal reason, independent of his employment, to have an adulterous relationship with a stranger,

– the employee was no longer under the responsibility of his employer at the time of death and the death occurred for a personal reason,

– the heart attack is not work-related because it resulted from the sexual activity

The Court of Appeal in a decision of 17th May 2019 dismissed the employer’s claims and acknowledged the death as a work-related accident.

The qualification of work-related accident (“accident de travail”) allowed the heirs to receive compensation from the social security fund. It also had the effect of increasing the rate of the contribution to the work-related accident compensation which must be paid by the employer.

Although the decision may look surprising, it results from the very wide definition of what constitutes a work-related accident. Indeed, French Law grants protection to employees on business trips and makes no distinction between accidents that occur during a professional act or an act of everyday life.

For example, in a previous case, a court decided to qualify as a work-related accident an incident where an employee injured his leg whilst out for the evening at a night club. What may be more unusual is the fact that the court of appeal considered that sexual intercourse, even extra-marital sex on a business trip, is an act of daily life, in the court’s words, just like taking a shower or having a meal.

Thus, the Court of Appeal ruled that the employee had not interrupted his mission to perform an act unrelated to that mission. The court also held that the fact that the accident did not occur in the hotel room booked by the company did not mean that the employee was no longer under the authority of his employer.

The Employer may decide to lodge a claim before the Supreme Court and it would be most interesting to see whether the Supreme Court will confirm the analysis of the Court of Appeal.



New single enforcement body for employment rights

As part of the UK’s Government’s “Good Work Plan” to ensure fair and decent work for all, transparency and clarity of workers’ rights and effective enforcement of those rights, proposals for a single enforcement body were published for consultation in July this year.

Currently in the UK, the majority of employment rights are enforced by the individual through an employment tribunal. However, there are some exceptions where various enforcement bodies take a role to protect particularly vulnerable workers. Examples of this are enforcement of the right to the national minimum wage by HM Revenue and Customs (HMRC), enforcement of the laws on modern slavery and worker exploitation by the Gangmasters and Labour Abuse Authority (GLAA) and enforcement of employers’ duties in relation to health and safety at work by the Health and Safety Executive (HSE).

Under the current fragmented system of enforcement, it can sometimes be difficult for workers and employers to know where they should go for help if they believe their rights are being infringed or want information on their workers’ rights.

In order to address these issues, the UK Government proposes the creation of a single labour market enforcement body to better support businesses who want to comply with the rules, to deliver its promise of state enforcement of holiday pay for vulnerable workers and to provide a strong, recognisable single brand so that individuals know where to go for help with regard to their employment rights.

Whilst sure of the great opportunities which its proposals present, the Government is also aware of the risks, for example, that of losing the benefits of the specialisation and expertise built up in the existing specialist bodies.

Under the proposals, the single enforcement body would take on the existing enforcement role of specialist bodies such as the HMRC for enforcement of the national minimum wage and the GLAA for modern slavery offences. It is also consulting on the possibility of the single body dealing with the penalty system for enforcement of tribunal awards (currently undertaken by the Department for Business, Energy and Industrial Strategy) and enforcement of statutory sick pay. However, given how established the health and safety regime is, it is not proposed that the specialist work currently undertaken by the HSE be incorporated within the remit of the new enforcement body.

It is proposed that the new body would also take on the state enforcement of certain rights which are not currently enforced by the state, such as the right to holiday pay for vulnerable workers. However, it is not intended that the state take on the enforcement of all employment rights. The vast majority will still require action by individuals through the employment tribunal system.

The consultation closes on 6 October 2019.


What are an employer’s chances of overcoming an employee’s claim for overtime in France ?

The basic working time arrangement in France is 35 hours per week, and although there are a number of alternative working time arrangements potentially available, this is still the one that applies to the majority of French employees. However, this is not a maximum working week – employees working beyond that amount are entitled to overtime.

Employers must be able to prove the actual number of hours worked by their employees and must therefore ensure such hours are properly recorded. In the absence of proper records, the employer may have difficulties in overcoming a claim for overtime payments made by employees before a court.

In practice, although medium- and large-sized companies generally use automatic systems to record the hours worked, a substantial number of employers in France do not monitor the working time of their employees, which puts them at risk. Although employees actually on the job rarely raise claims for overtime before the courts, such claims are quite common at the time of termination.

And thereby arises considerable difficulty for such employers.

The approach taken by the courts is that the employees have the initial burden of providing evidence to support their claim for overtime, which evidence must be specific enough to allow the employer to respond. The burden then passes to the employer to respond to claim by providing evidence likely to demonstrate the hours actually worked by the employees.

Case law provides examples of the means used by employees to support their claim for overtime payment: a manuscript note including the working hours established by the employees, or a note showing the various travels undertaken by the employee (for example, in the case of travelling sales personnel), supported by witnesses’ testimony, have been considered as sufficient grounds for an employee’s request for overtime payment.

Most employees (usually assisted by their lawyers) also “build” excel tables showing the time they claim to have worked, day by day, over a specific period. These tables are generally very complete and include the fairly complex calculation of the amount payable as overtime. These tables have become habitual and are very “user-friendly”, especially for a court which needs to determine the amount payable to an employee.

In a recent case, the employee provided to the court only very basic documents: no excel table and no testimony. He submitted only his employment contract and his pay slips, showing that he was sometimes paid for 12 hours a day, with no compensation for overtime, while his employment contract provided that he would work 9 hours a day, and compensation would be due from the 10th hour worked per day.

The Court of appeal held that these documents were not sufficient, and that since the employee did not provide a weekly calculation of his working hours, his claim should be dismissed. The French Supreme Court decided otherwise, considering that the Court of appeal’s request was not legitimate. Here, the employer was not in a position to challenge the employee’s claim and therefore it was ordered to pay the overtime claimed by the employee.

So to answer the question in our header, in the case of an employer who does not record working time, the answer will be basically: none. The methods by which an employee can demonstrate an alleged right to claim overtime payment are almost unlimited. It is therefore even more important for employers to make sure that they have at their disposal records, documents, or other means to be able to overcome efficiently such claims (which can go as far as 3 years before the date of the claim).

Shining the spotlight on dust lung disease in Queensland: a regulatory response for the resources industry

Since 2015, Queensland’s resources industry has been shaken by the re-emergence of dust lung diseases, largely among the State’s large coal mining workforce.  So far, more than 130 workers have been diagnosed with incurable forms of lung disease across Australia, resulting in 6 Queensland deaths in the past 12 months.[1] The State Government has responded to the outbreak with a raft of reforms designed to identify the risk, support affected workers and enhance prevention, detection and reporting.

With a range of reforms implemented, Queensland has now turned to ongoing regulation of the industry with the introduction of the new Resources Safety and Health Queensland Bill 2019 (RSHQ Bill) into the Legislative Assembly.

The introduction of the RSHQ Bill stems from 68 recommendations made by the Coal Workers’ Pneumoconiosis Select Committee in Queensland.  During the review, other deadly dust diseases were identified as also requiring a regulatory response.

The Committee made a range of recommendations, including that the Queensland Government should establish an independent regulatory body to regulate the Workplace Health and Safety in the resources sector.  Currently, this responsibility rests with the Department of Natural Resources, Mines and Energy (DNRME) and sits separately from the Regulator under the Work Health and Safety Act 2011 (Qld) (WHS Act).  The Committee’s recommendation, which will be implemented by the RSHQ Bill, seeks to implement a degree of independence in the area of safety and health regulation, from other government functions.

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Modern Slavery – What the Private Sector Needs to Know and How It Can Help

Every four seconds, someone in the world becomes a slave. It is estimated that there are currently over 40,000,000 modern slaves worldwide. The scale of the problem is such that it is impossible to ignore. This September, Norton Rose Fulbright welcomed Matt Friedman, CEO of the Mekong Club and international human trafficking expert, to Toronto and Ottawa to lead a seminar on modern slavery and its consequences for the private sector.

An estimated 76% of modern slavery takes the form of forced labour, and an estimated 60% of these cases are associated with supply chains. While the UN, NGOs and governments have taken action to combat modern slavery, last year a mere 0.02% of slavery victims were helped and less than 1% of criminals involved convicted.

This is where the private sector comes in. Supply chain legislation is emerging across the globe which not only requires companies to report on their slavery footprint, but is moving toward imposing fines and penalties on companies who fail to conduct human rights due diligence. More action is being taken against companies whose supply chains may benefit from forced labour, including consumer campaigns and even class action lawsuits. Media attention is also increasing dramatically, and investors are increasingly sensitive to modern slavery risks.

So, what can businesses do to mitigate these risks? Mr. Friedman gave several examples.

The first step is often raising awareness of the impact of modern slavery. There are extensive resources businesses can review to assess and identify the risks they face. Mr. Friedman emphasized the importance of businesses knowing their own supply chains through regular audits beyond the first tier. Acknowledging the potential financial burden this involves, Mr. Friedman noted an emerging trend to share audit information, including on an aggregated basis, given the potential reputational harm that can accrue collectively to a sector as a whole becoming associated with slavery.

Companies should also recognize the limitations of audits. Auditors often focus more on health and safety standards than on skilled interviews to detect forced labour, and individual auditors often lack the necessary authority to raise a serious issue in a timely way.

Mr. Friedman also noted several steps businesses can take. As well as sharing data, they can engage in training employees and suppliers, update their policies, update their recruitment and labour standards, implement anonymous reporting mechanisms, and set up emergency response teams. In fact, these are some of the things which Mr. Friedman’s association, the Mekong Club, can assist. The Mekong Club has developed several tools to help arm private companies in the fight against modern slavery, and Norton Rose Fulbright can also provide guidance and advice in assessing and implementing appropriate systems within your organization.

The author wishes to thank Kayla Quintal, articling student in Ottawa, for her contribution to this piece.