The Court of Appeal has sided with IBM Holdings in a battle over the closure of its defined benefit (DB) schemes and a cap on increases in pensionable pay.
The court has this morning dismissed the High Court's 2015 ruling that the computing giant had not acted in good faith when implementing a series of changes to its DB schemes.
The judgment specifically took issue with the prominence the High Court judge gave to members' 'reasonable expectations', which were argued to have been generated from the company's communications.
Instead, it said the High Court should have considered these as a factor within a 'rationality' test - whereby only relevant matters are considered, and irrelevant factors are ignored - with similar weighting to other factors, such as IBM's commercial interests.
Consequently, a number of assertions made by the High Court which were largely based on this escalated importance of member expectations, including that IBM had breached its duty of good faith, also fell through in the Court of Appeal's judgment.
The ruling is likely to give confidence to employers seeking to make changes to benefits in the future.
In 2004, as part of a package of proposals named ‘Project Ocean', the computing giant increased member contribution rates for those in contributory plans, while the accrual rate was cut for those in non-contributory plans.
Towards the end of the next year and at the start of 2006, the company then returned to members with ‘Project Soto', which gave the DB members the option to either accept a change in the accrual rate for increases in pensionable salary to two-thirds, or to enter a new enhanced defined contribution (DC) plan.
As part of this deal, members were told that there would be no further changes to the schemes, and that the proposals were "long-term".
However, in 2009, IBM then returned to members with ‘Project Waltz', which included plans to close the schemes to future accrual from April 2011, and make future pay increases non-pensionable.
Also, members could take advantage of an early retirement window with favourable discount factors between November and December, or a new early retirement policy on cost neutral terms would take effect in April 2010.
At the time, unions described the changes as "enforced" early retirement, with members given a short "window of opportunity" to make their choice before discount factors were worsened.
In 2014, the High Court ruled IBM had acted against the members' "reasonable expectations" and therefore in breach of its duty of good faith, by closing its DB schemes to accrual and introducing a restrictive early retirement policy.
And, in a separate hearing in 2015, it ordered a number of remedies: the voiding of agreements, made between 2009 and 2011, to make future pay increases non-pensionable under Project Waltz; that the DB schemes be treated as never having closed to accrual; and, that affected members were entitled to a remedy, such as an injunction or damages.
However, none of these remedies have been implemented pending the judgment from the Court of Appeal , and today's ruling means they no longer need to be applied.
Taylor Wessing partner Mark Smith said the judgment was a "comprehensive victory" for IBM, and that it would clear up confusion from the High Court's ruling.
"What the Court of Appeal has said is the High Court judge elevated reasonable expectations to a status beyond which they have as a matter of law," he said. "He effectively created a new legal test, saying that once these reasonable expectations had been established then IBM had to act in accordance with them.
"The Court of Appeal has said that is not the right approach. They are simply one relevant factor that the company has to consider. They are not a legal commitment to do something or not to do something.
"This judgment will prove fairly helpful for those advising employers on taking decisions, because we have a very clear statement from the Court of Appeal about what the right tests are and what they are not. It takes away some of the uncertainty and confusion that resulted from the High Court judgment."
The case will certainly give employers some renewed confidence of their decision-making abilities when seeking to change benefits. Sackers associate director James Bingham said it was a case for "IBM to really celebrate".
"They've overturned something that was a real kick for them at the High Court," he added. "But, given the extreme nature of this case, it's quite hard, if IBM didn't fail to meet the relevant test under these particular facts, to envisage a set of circumstances where any appropriately-advised company would really fall foul to a significant extent in this way.
"You question the extent to which these duties of good faith and trust and confidence actually give members any real protection beyond the normal protections that they would have anyway."
Ashurst pensions lawyer John Gordon added the judgment underlines that communications cannot be treated as necessarily legally-binding.
"Employers will be breathing a sigh of relief after this ruling. They were worried that anything they said to employees could be taken down and used in evidence against them in court," he said.
"They will be more relaxed now that the Court of Appeal has decided that workers can't treat every employee communication or statement made by a manager as an everlasting contractual promise entitling them to enhanced employment and pension rights. It may now be difficult for workers to claim rights in these circumstances."
The judgment follows last week's ruling in the Court of Appeal, when judges agreed the BBC could impose a cap on increases in pensionable pay.
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