Pensions analysis: Has the Court of Appeal's decision in O'Brien v Ministry of Justice clarified the pension rights for part-time workers once and for all? Elizabeth Ovey, Barrister at Radcliffe Chambers, explores the issues before the Court of Appeal.
O'Brien v Ministry of Justice; Walker v Innospec and others  EWCA Civ 1000,  All ER (D) 46 (Oct)
The Court of Appeal, Civil Division, dismissed two appeals against decisions of the Employment Appeal Tribunal (EAT), holding, in respect of the first appeal, among other things, that, at the time of the first appellant's service as a part-time recorder before the date for the transposition of the Part-time Workers Directive 97/81/EC into domestic law, he had acquired no pension rights and could not do so retroactively. As to the second appeal, it held, among other things, that para 18 of Sch 9 to the Equality Act 2010 was not incompatible with Directive 2000/78/EC.
What were the issues before the Court of Appeal?
Mr O'Brien was appointed as a Recorder sitting part-time from 1978 and remained a part-time judge until 2005.
Earlier stages in this long-running litigation established the principle that part-time judges are entitled to participate in a judicial pension scheme, accruing pension by reference to the proportion of time for which they sit as compared with the time for which a full-time judge sits.
That entitlement arises under the Part-time Workers Directive, which was required to be transposed into domestic law by 7 April 2000. The Part-time Workers Directive was purportedly transposed into English law by the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000, SI 2000/1551, but reg 17 excluded part-time judges from the scope of the Part-time Workers Regulations.
The Supreme Court decided in Ministry of Justice (formerly Department for Constitutional Affairs) v O'Brien (Council of Immigration Judges intervening)  UKSC 6,  2 All ER 1 that part-time judges were 'workers' for the purposes of the Part-time Workers Directive and that the exclusion purportedly imposed by reg 17 was not objectively justified. Since the Part-time Workers Directive bound the UK, reg 17 was in effect disapplied and Mr O'Brien was held entitled to his pension. The Supreme Court remitted to the employment tribunal the question of the amount of the pension.
The most significant issue (out of eight) before the tribunal was whether the whole of Mr O'Brien's service as a Recorder should be taken into account in calculating his pension, or whether only service from and after 7 April 2000 should be taken into account. That was the sole issue before the Court of Appeal.
What conclusions did the Court of Appeal reach and what were its reasons?
O'Brien was successful in getting a decision from the employment tribunal that the whole of his service should be considered. That decision was reversed by the EAT. The Court of Appeal dismissed Mr O'Brien's appeal. The amount of his pension is limited to the pension he earned from service between 7 April 2000 and 31 March 2005, when he stood down as a part-time judge.
At all stages of the case, it was agreed that the answer was to be reached by applying the 'future effects' principle found in European law, explained by Lewison LJ at para  as being that 'amending legislation applies, unless otherwise specifically provided, immediately to the future effects of a situation which arose under the law as it stood before amendment'.
As Lewison LJ then recognised at para , that formulation raises the question as to what is meant by 'a situation which arose' under the old law. European jurisprudence identifies the critical point as being whether the legal effects of the situation in question have been exhausted before the change in the law (in which case the situation is described as 'permanently fixed'), or whether there is an ongoing situation that was created but not permanently fixed before the change in the law.
Where the situation is permanently fixed, to apply the new law would be to give it retrospective effect, but where it is not permanently fixed there is scope for it to apply in accordance with the future effects principle.
Lewison LJ also referred to the European authorities establishing that pension rights are treated as deferred pay, accruing during the period of service and becoming exercisable on retirement, when the accrued pension becomes payable. He drew the conclusion that pension rights attributable to any period of service are acquired definitively during that period and the legal situation is permanently fixed when the period expires.
Finally, he drew attention to the distinction between access to a pension scheme and the calculation of benefits under a scheme. Since the right to belong to a contractual scheme is part of pay, sex discrimination in relation to access has been impermissible since Defrenne v Sabena  1 All ER 122. Sex discrimination in the calculation of benefits was the subject matter of the Barber litigation and, by the application of an approach analogous to the future effects principle in relation to legislation, rights under Barber apply only from 17 May 1990 (Barber v Guardian Royal Exchange Assurance Group: C-262/88  2 All ER 660).
Having thus set the scene, Lewison LJ dealt with Mr O'Brien's arguments.
The first argument was that (as put by Lewison LJ), the final pension cannot be known until the judge retires, because the scheme is a final salary scheme. That argument failed, not surprisingly since much of the European case law already discussed related to final salary schemes, where comparable accrual and payability terms existed.
It appears from the decisions of the employment tribunal and the EAT that the argument was expressed as being that the entitlement was contingent until retirement, or only crystallised on retirement, so that, using Lewison LJ's distinctions, until retirement there was an ongoing situation rather than one which was permanently fixed. There is no distinctive element of contingency in the judicial pension scheme as compared with any other scheme which would enable the court to distinguish the weight of European authority.
The second argument was based on the rejection by the Court of Justice, when Mr O'Brien's case was before that court, of a submission by the Latvian government (O'Brien v Ministry of Justice: C-393/10  All ER (EC) 757). That submission was that because the final extension of Mr O'Brien's appointment was before 7 April 2000, he was not entitled to any pension, because legal rules adopted subsequently should not be applied to legal relationships that began before the adoption of the new rules. Lewison LJ described the Latvian government's submission as a hopeless argument that did not advance the appeal. Clearly the application of new rules to pre-existing but continuing relationships is of the essence of the future effects principle--the question is how, rather than whether, the rules apply.
The third argument was the principal argument and was the one on the basis of which Mr O'Brien succeeded before the employment tribunal. It was contended that the point had been resolved in his favour by the decision in INPS v Bruno: C-395/08, referred to in the various judgments as 'Bruno and Pettini'. In summary, it concerned a pension scheme for workers, access to which depended on having worked a specified number of qualifying weeks. Part-time workers who worked a limited number of hours each week worked qualifying weeks each week, as did full-time workers, but part-time workers who worked full-time one week and not at all the next (called vertical part-time workers) worked only one qualifying week in every two.
One of the points that arose was whether vertical part-time workers could bring into account their service before the Part-time Workers Directive took effect in order to establish entitlement to join the scheme. The Court of Justice decided that, provided they had not definitively retired when the Part-time Workers Directive came into force, they could do so. The argument for Mr O'Brien was in effect that if pre-7 April 2000 service was taken into account to determine access, it could not be ignored in calculating benefits, and in the Court of Appeal it was contended that the Court of Justice had in fact been considering the calculation of benefits (as well as access).
The Court of Appeal noted that Bruno and Pettini was regarded by the Advocate General as of poor quality, failing to make clear the basis of entitlement. Lewison LJ was, however, firmly of the understanding that the Court of Justice was not dealing with calculation of benefits, but solely with access. The case was therefore not a decision in favour of Mr O'Brien. That was also the understanding of the EAT.
Having disposed of Bruno and Pettini, Lewison LJ applied the principle of legal certainty by which situations that have exhausted all their effects in the past are not called into question by subsequent legal changes to decide that Mr O'Brien had accrued no pension rights prior to 7 April 2000 and that he could not acquire such rights retroactively. His rights in respect of earlier service were permanently fixed as not including any pension rights.
How does the Court of Appeal's decision impact on trustees and employers of occupational pension schemes?
It is clear that the Court of Appeal saw no relevant distinction between the judicial pension scheme (in the two versions which were relevant to Mr O'Brien's claim) and other final salary occupational pension schemes. Therefore, employers will not be obliged to face pension liabilities in respect of part-time workers attributable to service during a period in which such workers had no right to accrue pension benefits. That is the practical outworking of the legal certainty principle referred to in the judgments--employers can conduct their affairs in the assurance that present service will not give rise to future, unanticipated, pension liabilities.
The decision also brings clarity to trustees about the extent of the scheme's liability in respect of part-time workers and who do not face the unwelcome prospect of identifying a sudden fall in the scheme's funding level and consequent negotiations with an unhappy employer to try to make up the shortfall.
On what basis could Mr O'Brien possibly appeal against the Court of Appeal's decision? Are there any other possible alternative means of action?
Mr O'Brien's case was heard and decided together with the case of Walker v Innospec, raising the issue of the application of the future effects principle in connection with survivors' benefits for same-sex spouses and it appears likely that permission to appeal to the Supreme Court will be sought.
One would expect the desirability of a careful examination of the scope of the future effects principle, and in particular of the effect of the decision in Bruno and Pettini to feature prominently in an application for permission. The scheme involved in Bruno and Pettini was very different from any ordinary UK final salary scheme, since qualification was by working for 1,820 qualifying weeks, meaning (if those weeks were worked consecutively) that the qualifying period was 35 years, or the best part of the employee's working life. Workers were not thus accruing pension rights with the same definitiveness as such rights are usually accrued, when the right of access is established at an early stage.
When a full-time worker completed the 35 years of qualifying weeks, the pension became calculable by reference to all those preceding weeks. One can understand how Mr O'Brien might seek to argue that the consequence of enabling vertical part-time workers to have equal access to the scheme was that their weeks of service became retrospectively relevant for benefit purposes just as did the service of full-time workers, and that that was the proper application of the future effects principle, even if those consequences were not fully spelt out in the Court of Justice's judgment.
It would, of course, then be necessary to go on to persuade the Supreme Court that it would equally be a proper application of the future effects principle to take into account all service despite the fact that while discrimination against part-time workers was lawful, full-time and part-time workers were legally receiving different pay, including in the concept of pay the deferred pay of pension rights. That seems likely to be an uphill struggle.
If the Supreme Court does not come to Mr O'Brien's rescue, he has no direct right of access to the Court of Justice. He could, however, complain to the European Commission on the ground that limiting his pension to that attributable to service after 7 April 2000 is incompatible with the Part-Time Workers Directive. The Commission could take the matter up with the UK and, if not satisfied with the UK's response, could then bring its own proceedings in the Court of Justice. In practice, however, it seems very doubtful whether the Commission would be willing to engage in such actions.
Does this judgment effect or give any further clarification on the 'no retroactivity' principle? Does this judgment effect or give any further clarification on the 'future effects' principle?
As Lewison LJ said at para , the two principles are complementary. Which of them applies depends upon whether or not a situation has become permanently fixed or definitively established. It follows that, although the judgments at all stages refer to the scope of the future effects principle, the consequence of the decision is to identify also what would fall foul of the no retroactivity principle.
The decision of the Court of Appeal is a helpful clarification of the complementary nature of the two principles and how it is to be determined which of the principles applies. The obvious similarity of the outcome to the temporal effect ultimately given by the Court of Justice to Barber means that it is not likely to have come as much of a surprise to pensions lawyers.
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