UK - Lawyers have warned employers they could face significant compensation costs if an employee found to have been unfairly dismissed is a member of a defined benefit (DB) pension scheme rather than defined contribution (DC). 

Analysis of a recent ruling from the Employment Appeal Tribunal (EAT) by Wragge & Co found that when calculating compensation for an unfairly dismissed employee a tribunal can differentiate between a DB and a DC pension scheme.

In the case of Roberts v Aegon UK Corporate Services Ltd - itself a UK pensions provider - the original tribunal found that although Ms Roberts had secured alternative employment following her dismissal, which meant she couldn't claim for ongoing loss of earnings, it determined there was "still ongoing pension loss" because the new job only offered a DC scheme rather than DB.

Following an appeal by the employers Aegon - on the basis that the tribunal should not have separated the pension loss from other earnings - the EAT was asked to confirm how pension loss should be treated when the employee is in a DB scheme.

The tribunal ruled that as DB schemes are "being eased out in the private sector" it was unlikely the employee could obtain a similar pension arrangement in a new company so the lack of DB scheme was a continuing loss that did not stop on getting another job.

At the appeal the EAT agreed with the tribunal's ruling and added that it considered the loss of the DB benefits would have continued for as long as the tribunal determined the employee would have stayed with her former employer - up to the age of 50 - so Roberts was entitled to compensation for pension loss up to that point.

Wragge & Co said the EAT's judgement that the loss of DB benefits can be considered separately and extend beyond the period of a loss of salary "could pose a significant cost in unfair dismissal claims", particularly if the employee has a considerable period of time until retirement as "any discrimination element removes the compensation cap".

That said, the law firm noted the EAT did not discuss the fact that many DB schemes are closing to future accrual for existing members, which means there is no guarantee the employee would have continued to receive the DB benefits if they had remained employed.

The employer is currently seeking permission for leave to appeal the ruling and Wragge & Co suggested "it will be interesting to see what the court of appeal decides", but warned employers concerned about a similar situation "should prepare mitigation arguments carefully".

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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