Pensions: Ministry of Justice and another v Merry

May 23, 2019

This article was originally published by LexisNexis in November 2018. 

By Scott Redpath

In Ministry of Justice and another v Merry [2018] EWCA Civ 2461, the court had to consider what pay is included in the concept of ‘basic pay’ for the purposes of the Principal Civil Service Pension Scheme (PCSPS), so as to qualify as ‘pensionable earnings’ under the scheme rules. The judgment is also of relevance to other statutory and private pension schemes and certain other legislative provisions. Scott Redpath—who appeared for the respondent—discusses the case.

What was the background?

The Ministry of Justice and the Cabinet Office appealed a decision of the High Court in relation to severance pay and pension benefits claimed by Mr Merry in connection with his employment within Her Majesty’s Court Service. The principal issue at trial and before the Court of Appeal was whether pay which Mr Merry received for working reasonable hours over weekends by arrangement with his employer for a period of many years, for which he was paid overtime rates, in addition to what he was paid in respect of his employment during the normal working week, as defined in his contract of employment, qualified as “pensionable earnings” for the purposes of the relevant provisions of the Principal Civil Service Pension Scheme and the Civil Service Compensation Scheme. The key question was whether Mr Merry could establish that the sums paid to him in respect of the hours worked at weekends constituted part of his “basic pay” within the meaning of that term as it is found in the Pension Scheme rules.

What did the court decide?

The Court of Appeal agreed with the trial judge that the simple concept of “basic pay” as used in the Pension Scheme rules is, straightforwardly, the pay due in respect of the obligatory contractual working hours of the employee, meaning hours in respect of which there is an obligation on the employee to work those hours and an obligation on the employer to provide work to be fulfilled by the employee in those hours or to pay the employee in respect of those hours even if no work is provided. In this respect, the arrangement by which Mr Merry would work a reasonable number of hours at weekends, in addition to the normal working hours expressed in his written terms and conditions, was not so uncertain as to be devoid of contractual effect. It made no difference to this analysis that Mr Merry was paid at an overtime rate for working additional hours at the weekend.

What are the practical implications of this case?

This is important clarification from the Court of Appeal of the concept of “basic pay” as that term is used in principal benefit arrangements currently available for the Civil Service. The judgment will be of wider relevance for those statutory and private arrangements, in particular pension schemes, that import the idea of “basic pay”, as a way to distinguish it from non-contractual pay, by way of overtime, bonus, commission, gratuity or allowance, in calculating contributions or benefits. It will also be relevant to the application of certain statutory regimes which depend on such distinctions, such as the assessment of pay and benefits that count towards National Minimum Wage, or the new tax rules introduced from 6 April 2018 into Chapter 3 of Part 6 of ITEPA 2003 applying to payments in lieu of notice paid on termination of employment. Given the wide range of obligations with respect to working hours encountered in practice, with more or less flexibility as regards hours worked, whether hours worked are contractual or not will depend on the facts of a specific case.