Landmark decision from the Supreme Court on the meaning of “unfavourable treatment”

The Court ruled that an employee had not been unfavourably treated because of something arising in consequence of disability when his ill-health early retirement pension was calculated on part-time salary rather than full-time salary. The award of the ill-health pension could not be said to be unfavourable and, simply because the benefit could have been more advantageous to him in different circumstances, this did not mean that Mr. Williams had been treated unfavourably within the meaning of the Act.

Mr. Williams suffered from several conditions including Tourette’s Syndrome and depression. It was accepted that he was disabled. He had worked full-time for a number of years but, by July 2011, and at his request, his hours had been reduced by half. Mr Williams applied for ill-health retirement when he was 38.

Under the rules of the pension scheme Mr. Williams was entitled to, and received:

• A lump sum and annuity, payable immediately, calculated on the basis of his actual salary at the relevant time, with no reduction for accelerated receipt; and
• An enhancement to both the lump sum and annuity, payable immediately, with no reduction,  calculated on the basis of his actual salary at the date of retirement and a period of deemed pensionable service as though he had continued to be employed in active service until his normal pension date (NPD) at age 67.

Mr. Williams had been successful at the Employment Tribunal in arguing that he was working part-time because of his disability and the calculation of the enhanced element of his pension based on his part-time salary constituted unfavourable treatment under section 20 which could not be justified. He gave the example of someone retiring suddenly due to a stroke. Their pension would be calculated on full-time salary (assuming they had been working full-time until their illness).

The Trustees and University successfully appealed to the EAT. Only employees retiring through ill-health and who were disabled within the meaning of the Act could retire early and receive an immediate enhanced pension. This was favourable, not unfavourable, treatment of disabled people.

Mr. Williams’ appeals to the Court of Appeal and Supreme Court were unsuccessful.

Matthew Smith, Employment partner at Blake Morgan who acted for the Trustees and University comments: 

“The Supreme Court identified two simple questions. What was the relevant treatment and was it unfavourable to the claimant?  When looking at whether or not treatment is unfavourable, the Supreme Court cautioned against ‘an artificial separation’ between the method of calculation of an award and the award to which the calculation gives rise. In this case the treatment was the award of a pension. As the Supreme Court said, there was nothing intrinsically “unfavourable” or disadvantageous about the award of the pension. In fact, if Mr. Williams had been able to work full-time, that is if he had not been disabled, he would not have had an entitlement to a pension at all until age 67.

The Court’s decision confirms a common-sense approach to the meaning of the word “unfavourable”. It also provides reassurance for employers whose pension schemes or insurance contracts offer certain benefits in cases of disability, because it makes it less likely that the structure of such benefits will be regarded as giving rise to unfavourable treatment, requiring to be justified”.

Matthew Smith & Lucy Leonard-Davies of Blake Morgan LLP represented the University and Trustees, instructing Keith Bryant QC and Saul Margo of Outer Temple Chambers.