Good faith: an employer’s duty

By Jennifer Bell and Neal Gibson

In a bumper 435-page judgment, the High Court has ruled that IBM UK breached its duty of good faith to its employees and former employees. The breach was triggered by the way in which it closed the defined-benefit (DB) sections of its pension schemes to future accrual and introduced new benefit restrictions. The judge (Mr Justice Warren) also found that consultation with employees about the changes was not open or transparent and held that this was also a breach of IBM’s duty of good faith. The remedies flowing from the breaches will be considered at a later hearing.

Nabarro represented the pension scheme trustee in this case.

This case is an important step in establishing the extent of the obligations employers owe their employees and former employees in relation to pension provision. It will be of great interest to any employer who has, or who is considering, ceasing DB accrual or introducing new restrictions on benefits. Key to this decision were the communications issued to members in the months and years before the changes were made — these were found to have given members reasonable expectations as to their future pension benefits…

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