Eversheds litigation warning against ‘just the minimum’ approach to AE

Global legal giant Eversheds Sutherland is warning employers who do the bare minimum to comply with auto-enrolment regulations could face litigation claims or fines from regulators in future.

The global law firm is warning that compliance with auto-enrolments does not by itself ensure employers are free from risk of litigation or regulatory comeback. A new policy paper, written in conjunction with Royal London called ‘Automatic enrolment and the law – how far do employers’ duties extend?’ covers three areas where larger employers in particular may wish to do more than the legal minimum. It cites the example of the US where employers have paid out over $350m in legal settlements in relation to their workplace pension provision since 2009. The paper argues that while the principle has never been tested in the UK Courts, it is possible to argue that an employer which has selected an automatic enrolment plan should not treat this as a “once and done” decision, and turn a blind eye to how it develops relative to its peers and the market.

The paper also flags up the risk that future regulators and ministers may decide that today’s employers should have gone beyond the basic legal minimum requirements around automatic enrolment, especially if some workers end up getting poor outcomes.

It also argues that courts may decide, as they have done in other pensions-related legislation, that employers have an ‘implied duty’ to look after their workers and that a minimalist approach to automatic enrolment legislation could fall foul of this test.

To minimise the risk of legal comeback the paper recommends regularly reviewing an automatic enrolment scheme and ensuring that the scheme chosen provides tax relief to all employees, including those earning below the tax threshold. It warns employers who choose a scheme which delivers tax relief through net pay arrangements could face challenge as this excludes non-taxpayers from the benefit of tax relief.

Eversheds also recommends employers protect individuals against making poor decisions. Whilst employers are not under a legal duty to provide financial advice to their employees, courts have implied a duty on employers to provide information to employees about their pension rights where not doing so could lead to an individual suffering financial loss, says Eversheds.

Eversheds Sutherland partner and head of pensions Francois Barker says: “In the US, employers have had to pay out over $350m in damages in connection with shortcomings in workplace retirement plans.  Whilst there is not an exact parallel with the UK, the law tends to evolve over time and the courts may decide in the future that employers – particularly large ones – should have done more than the bare minimum required under the automatic enrolment rules.   If firms want to insulate themselves as far as possible against future regulatory action, there are a number of key areas they should address on an ongoing basis.”

Royal London director of policy Steve Webb says: “It is very tempting for employers thinking that once they have chosen a pension scheme and enrolled the right workers they can largely forget about automatic enrolment.  This paper is a wake-up call, especially for larger employers, which suggests that this might be a high-risk strategy.  Many larger employers do already take pensions seriously and go well beyond their statutory minimum duties.  But all employers should be reviewing their automatic enrolment arrangements on a regular basis to ensure that it remains fit for purpose.”