High Court upholds Pensions Regulator's approach to auto-enrolment of peripatetic workers

Out-Law News | 15 Jan 2016 | 5:30 pm | 3 min. read

The eligibility of peripatetic workers for automatic enrolment onto workplace pension schemes in Great Britain depends on where the worker is based and not on what is set out in the worker's contract, the High Court has said.

The court upheld the approach to worker eligibility set out in guidance by the Pensions Regulator, in the first legal challenge to its automatic enrolment policy. However, the judge ruled that Fleet Maritime Services (Bermuda) Ltd (FMSB), which employs crew members for P&O and Cunard cruise ships, did not have to automatically enrol workers on ships that spent all or most of their time outside of Great Britain and whose tours of duty did not begin or end in Great Britain.

"The case certainly shows a willingness on the regulator's part to go all the way through expensive judicial review proceedings if it feels strongly enough about an issue, which it clearly does in relation to automatic enrolment," said pensions litigation expert Ben Fairhead of Pinsent Masons, the law firm behind Out-Law.com. "Equally, the outcome does effectively close down potential loopholes that might have been exploited by some employers in order to avoid auto-enrolment obligations, such as making contracts not subject to English law."

"That said, the regulator did not succeed with all of its arguments and its decision was, given the amendments required, still quashed - with neither side recovering legal costs. In addition, the original granting of permission to proceed with the claim strikes me as significant given it points towards a possible lacuna in the procedure for challenging the regulator on auto-enrolment, and it will be interesting to see whether any other aggrieved employers faced with compliance notices that have been affirmed by the regulator consider the judicial review route on the same basis," he said.

Generally only penalty notices, not compliance notices, issued by the Pensions Regulator can be challenged in the First-tier or Upper Tribunal. Compliance notices must instead be appealed to the regulator. FMSB was sent a compliance notice by the regulator in July 2014, setting out the employer duties that it needed to comply with and the categories of worker that the regulator considered were covered by the legislation. The company appealed this notice, but it was upheld by the regulator.

Under the 2008 Pensions Act, employers are under a legal duty to automatically enrol all workers who are "working or ordinarily [work] in Great Britain under the worker's contract" into a pension scheme which meets certain minimum requirements. They are then legally obliged to make contributions towards the pensions of those that do not opt out, and to 're-enrol' those who do opt out once every three years. The dispute in this case concerned whether a seafarer based on a cruise ship when spent a significant majority of its time outside UK territorial waters could be said to be "ordinarily working" in Great Britain.

In its July 2014 compliance notice, the regulator set out its views that the auto-enrolment duties should apply to workers living in the UK who joined the ship from a UK port, as well as to workers living in the UK who joined the ship elsewhere in the world but whose travel time from the UK was counted as working time. Workers who lived in the UK but who joined the ship elsewhere in the world were not covered by the duties, it said.

High Court judge Mr Justice Leggatt agreed with the regulator in relation to the first category of workers, while its decision in relation to the third category of workers was not subject to challenge. However, he disagreed with its position on those workers that joined the ship outside of the UK.

"I do not consider that such a worker who begins and ends their tours of duty outside the UK, and who spends most if not all of those tours of duty outside the UK, can legitimately be regarded as ordinarily working under their contract in the UK," he said.

"The regulator appears to have taken the view that, in circumstances where under the terms of the contract days spent travelling to and from the ship are treated as days of work for the purposes of entitlement to pay and leave, the seafarer should be regarded as beginning and ending their work in the UK and, on that footing, as based in the UK and hence as a worker who ordinarily works in the UK. I do not think that this is a correct approach. Although it is understandable that under the worker's contract travel days are paid and are not counted as leave, the seafarer is not in fact working on those days but is commuting to and from the place where they are required to begin and end their work," he said.

Pensions expert Simon Tyler of Pinsent Masons said that the case could potentially have implications for other employers, given the length of time it had taken for a case looking at the point to reach the courts.

"When auto-enrolment legislation first came out, many employers had to grapple with deciding how it applied to workers who move in and out of the UK, or who are seconded to the UK from another country," he said. "Employers will now wish to check whether the arrangements they have put in place tie up with this judgement."