“where an employee has an important decision to make which has material financial implications the safest course of action for an employer is to provide the individual with all of the information that they need in order to make an informed decision and to make sure that the individual is aware of the existence of that information” –

“it could be said that where an employer is aware of information that is relevant to a decision being taken by a member which could have material financial consequences for the member, it is possible that it may be held that there is a duty on the employer to inform the member of the relevant information prior to the decision being made.” –

The following legal note has come to me from Francois Barker of Eversheds and is published here with his kind permission. Thanks too to Romi Savova of Pensions Bee for bringing it my attention.

It concerns the case of Scally v Southern Health – I’ll be referring in later blogs as it is important for employers to be aware of their obligations to their staff with regards to pension information, in legal circles Scally has even his own duty – “the Scally duty”!

The note can be read alongside my blog that talks of the implied obligation of good faith on employers towards their staff (pension)

Taken together, I would suggest that there is a definite legal obligation on employers to provide information on which staff can take decisions on pensions.

But it should not be the primary driver on the employer; there are clear commercial advantages and (where the senior management of the staff are in the workplace pension), a further driver we might call “enlightened self-interest”.

Here then is the note from Eversheds, I have been asked to point out  that  “this is not (and should not be relied upon as) legal advice, and provided for information only”.

It would be really helfpul if those pension lawyers who read this blog, could provide – for information only – how the Scally duty (and the Bennett judgement) impact employers providing workplace pensions as part of the employer duties under auto-enrolment.

Summary and key principles

• The Courts and the Ombudsman have consistently held that an employer is not under a legal obligation to provide advice to its employees.

• However, in Scally v Southern Health and Social Services Board (1991), the House of Lords held that an employer has an implied contractual duty to take reasonable steps to inform an employee of a contractual term in order for them to take advantage of it where:
• the terms of the contract have not been negotiated with the individual but result from negotiation with a representative body or are otherwise incorporated by reference
• the particular term in question makes available a valuable right contingent upon the individual taking action to avail himself of its benefit, and
• the employee cannot, in all the circumstances, reasonably be expected to be aware of the term unless it is drawn to his attention.

• In Scally, the claimants were medical practitioners employed by a health and social services board. The regulations governing their pension rights were incorporated into their contracts of employment and they were required to make contributions to the pension scheme and entitled to benefits under it. The claimants could purchase added years on generous terms within certain time limits, but were not informed of these provisions until it was too late for them to take advantage of them. The Court held this to be a breach of the employer’s implied contractual duty.
• This duty has been applied in subsequent cases and in decisions of the Pensions Ombudsman. In Perrett (PO-3750), the Ombudsman held that the Scally duty meant that the employer was required to provide “clear and readily available information to enable [the relevant member] to make an informed decision” about whether to opt-out of the pension scheme and the implications of doing so. The employer was also held to be under a duty in that case to provide “guidance to the member on where to find [that information]”.
• The Scally duty has been extended by the Ombudsman to apply to rights arising under arrangements entered into by an occupational pension scheme and not directly under a contract of employment (Bennett (PO-7182)). In Bennett the Ombudsman held that there was still a “sufficient contractual link” for Scally to apply.
• Arden LJ, in the Court of Appeal, has also been prepared to assume that a duty of care equivalent to Scally may arise in tort (Ibekwe v London General Transport Services Limited). The Ombudsman has also accepted that in the absence of a contract of employment a Scally type duty can arise in tort (Farrimond (PO-680)).
• In addition, it has also been held that a Scally type duty existed so that an employer was required to inform an employee of the tax implications on his retirement benefits of being re-employed within one month, even though this was not a contractual term (Cherry).
• In contrast, the Courts and Ombudsman have signalled that the Scally duty can be satisfied where an employer makes sufficient information available to an individual, even if the individual is not specifically referred to it in making their decision (e.g. Eyett and Farrimond).
• In addition, the Scally duty may not apply where an employer is unaware that particular information is, or will be, relevant to an individual (e.g. Ramsey and Ascough).
• The cases and, in particular, the Ombudsman’s decisions on an employer’s duty to provide information to its employees are fact specific and there are examples of complaints which look similar on their facts but where the Ombudsman has reached the opposite conclusion (see, for example, Cherry (PO-7096) and Ramsey (PO-3290)). This means that the line between circumstances in which a duty to provide information arises and when it does not is not always clear.
• In summary, however, it could be said that where an employer is aware of information that is relevant to a decision being taken by a member which could have material financial consequences for the member, it is possible that it may be held that there is a duty on the employer to inform the member of the relevant information prior to the decision being made. This is particularly so where the information in question relates to a contractual right or a right under the employer’s pension scheme and it cannot reasonably be expected for the member to know about it unless it is drawn to his or her attention. The Ombudsman has also been prepared in some cases to extend this duty to require an employer to inform an individual about the potential tax consequences of a decision, particularly where that information is known to the employer but not to the individual (and where it is not reasonable to expect the individual to be aware of it) – e.g. Cherry.
• Therefore, where an employee has an important decision to make which has material financial implications the safest course of action for an employer is to provide the individual with all of the information that they need in order to make an informed decision and to make sure that the individual is aware of the existence of that information.
• The Courts and the Ombudsman have made clear on numerous occasions that the duty to provide information is not the same as a duty to advise (see Perrett and Cherry). In particular, under the duty to provide information an employer is simply responsible for making all relevant information available to the individual and for drawing it to his or her attention so that the individual can access it to help them make an informed decision.
• The employer is not responsible for advising the individual on what course of action they should take based on that information or on which course of action would be more financially beneficial.

Final thoughts

Francois Barker of Eversheds can be contacted for legal advice on this and other pension matters at FrancoisBarker@eversheds.com .

I will be speaking to the AE review team about this. In the meantime, here is what the Pensions Regulator says employers can say to their staff;  it is couched in a pension world of DB plans and stakeholder pensions.

As yet we have little guidance for the 1m new employers who have no previous experience. The Pensions Regulator has published a series of template letters  for use with staff at the outset of auto-enrolment;   but to coin a phrase, workplace pensions are for life – not just for staging!