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When ignoring company principles can put you in breach of contract

17 April 2014 #Employment

The case of IBM UK Holdings Ltd v Dalgleish shows that when it comes to making fundamental changes to employees’ benefits and terms and conditions, the employer’s ethical standards and principles in dealing with its workforce can be relevant  when considering whether the changes were lawfully made.

IBM altered its pension arrangements to address a large deficit in the scheme.  The changes reduced retirement benefits and closed the defined benefit section of the plan to future accrual for most employees.  IBM had made a number of statements of principle emphasising the need for clear and transparent communication with employees. 

The case considered the pension law implications in detail.  However, interestingly from an employment law perspective the case found that there was also a breach of the implied term of trust and confidence on account of IBM’s failure to consult openly and transparently in accordance with their statements of principle.  The case held that IBM`s employees had a reasonable expectation of consultation in accordance with IBM`s statements of principle.  IBM’s failure to adequately consult amounted to a breach of the implied term of trust and confidence.  

Whilst the facts in this case appear to have been somewhat unusual and IBM may have been judged against a high standard, this case demonstrates the need for employers and trustees to carefully consider communicating with employees in relation to changes to benefits, particularly pension scheme changes.

IBM is appealing the decision to the Court of Appeal. 

Clarkslegal, specialist Employment lawyers in London, Reading and throughout the Thames Valley.
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