FULL RECOMMENDATION
SECTION 15(1), PROTECTION OF EMPLOYEES (FIXED-TERM WORK) ACT, 2003 PARTIES : EIRCOM - AND - ORLA MCDERMOTT (REPRESENTED BY IRISH MUNICIPAL, PUBLIC AND CIVIL TRADE UNION) DIVISION : Chairman: Ms Jenkinson Employer Member: Mr Carberry Worker Member: Ms Ni Mhurchu |
1. Appeal against Rights Commissioner's Decision FT17709/03TB.
BACKGROUND:
2. The claimant was recruited byeircomon a fixed term contract on the 1st of January, 2001 and was made permanent on the 4th of January, 2004. The Protection of Employees (Fixed-Term Work) Act, 2003, was introduced into Irish Law on the 14th of July, 2003. The Act seeks to improve the conditions of "Fixed-Term" employment by prohibiting less favourable treatment of fixed term workers than comparable permanent workers. Following the introduction of the Act on the 14th of July, 2003, sick pay arrangement were harmonised in line with permanent staff for the claimant and other fixed term workers. The claimant was not transferred from the Defined Contribution (DC) scheme into the Defined Benefit (DB) scheme on this date and the Union contends that this constituted less favourable treatment than two named and agreed comparable permanent employees who had been appointed to permanent positions in October and November, 2000, and assigned to the Defined Benefit scheme. The Company contends that the period for consideration in respect of the complaint should be confined to the period 14th July 2003, to the 3rd January, 2004, as the claimant's employment status changed from fixed-term contract to a contract of indefinite duration on the 3rd of January, 2004.
- The matter was referred to a Rights Commissioner for investigation. His decision issued on the 11th June, 2004, as follows:
“I believe that the legislation confines my consideration to the period of the 14th July, 2003, to the 3rd January, 2004.
During that period I do not find that the claimant was treated less favourable in respect of pension matters than the named comparators.”
On the 9th July, 2004, the Union appealed the Rights Commissioner’s Decision to the Labour Court in accordance with Section 15(1) of the Protection of Employees (Fixed-Term Work) Act, 2003. A Labour Court hearing took place on the 4th November, 2004.
DETERMINATION:
- This appeal by IMPACT is on behalf of the complainant who was employed on a fixed term contract with the Company from 2nd January 2001 until 4th January 2004 when she became a permanent employee. The Union contends that Ms. McDermott’s membership ofeircom’sdefined contribution pension scheme (“DC” scheme) during the period she was employed as a fixed term worker as distinct from membership ofeircom’s defined benefit pension scheme (“DB” scheme) which was available to comparable permanent employees constitutes less favourable treatment by the respondent, contrary to section 6 of the Protection of Employees (Fixed-Term Work) Act, 2003 (the Act).
The appeal from the Rights Commissioner’s decision concerns the company’s failure to transfer her from the DC scheme to the DB scheme on 14th July 2003 when the Act came into force. The complainant ceased to be a fixed term employee on 3rd January 2004. Neither party dispute that the period for consideration is 14th July 2003 to 3rd January 2004.
Background
On 14th July 2003, on the implementation of the Act,eircomhad in place two types of pension schemes –
-a DB scheme, which applied to graded staff, whose terms and conditions are subject to collective bargaining agreements and who are permanent staff (this scheme had applied to non-graded staff before 14th July 2003). This scheme is based on the Public Service superannuation model. It accrues one eightieth of final pensionable salary for each year of service, with provision for a lump sum of up to one and half times final pensionable salary and indexation of pension benefit in retirement by reference to salaries of serving staff. It has a vesting period of two years; employees leaving before that receive a refund of their own contributions only. At present the employer contribution is 8.2% and the employees contribution is 6.8%, of which 1.5% is for a spouses and children’s pension.
-a DC scheme, which applied to non graded staff, whose terms and conditions are negotiated on a personal contract basis and who are on fixed term contracts or contracts of indefinite duration. Employees contributed at the rate of 5.3% of basic pay and the Group contributed at the rate of 9.7% of basic pay.
- Prior to December 2002 the DB scheme had applied to permanent staff and the DC scheme had applied to fixed term contracts and others. After that date new recruits to permanent non-graded positions would join the DC scheme. All positions in the company are categorized as ‘graded’ or ‘non-graded’ posts. In the period since 1st December 2002 graded employees have joined the DB scheme and non-graded employees have joined the DC scheme.
The complainant was employed as a Project Manager on a three-year fixed term contract. On 24th November 2003 Ms McDermott accepted an offer fromeircomof permanent employment. On appointment to her permanent position on 4th January 2004 Ms. McDermott’s job title changed to Network Deployment Engineer. Neither the Project Manager nor the Network Deployment Engineer positions are graded positions. Her fixed term contract provided for membership of the DC scheme; her permanent contract provided for her to remain in the DC scheme.
The Comparators
Three comparators were cited in this case: -
A. Ms. O’C. was initially employed in a non-graded position for a fixed term commencing on 18th September 2000 when she became a member of the DC scheme. On 15th February 2001 she became permanently employed in a non-graded position. She remained a member of the DC scheme.
B. Mr. O’D. was employed on 6th November 2000 in the non-graded position as a Graduate Executive Engineer. His contract provided for membership of the DB scheme, as was the policy at the time.
C. Mr. T. commenced employment in October 2000 in a permanent non-graded position. His contract provided for membership of the DB scheme, as was the policy at the time.
- It was subsequently agreed between the parties that Comparator A was not suitable and that Comparators B and C were comparable permanent employees.
The Complainant’s Case
During the period for consideration, 14th July 2003 to 3rd January 2004, the complainant was a member of the DC scheme, which was less advantageous to her than the DB scheme of which her comparators were members. In support of this contention evidence was given on her behalf by Mr. B Lenehan an expert on pensions and superannuation schemes retained by the complainants union.
Mr. Lenehan submitted that had Ms. McDermott been in the DB scheme in the period under consideration, she would have earned .48 pension benefit years which would have earned her an annual pension of €926 per annum and that this amount would have been guaranteed (based on the complainant progressing through the salary progression scales in the company). Under the DC scheme the approximate value of her pension annuity for the period under consideration would be €437 per annum. As there are no guarantees in DC schemes, this figure is an approximate figure. He stated that the company were limiting their perception of the issue to the state of affairs as at 3rd January 2004. He maintained that it was not appropriate to do so. Instead he submitted that the appropriate means of considering the benefit would be what she would receive at the date of her retirement taking account of her full employment history, not the value of the six months benefit (14th July 2003 to 3rd January 2004).
He stated that the Company’s contention that the complainant’s membership of the DC scheme was more advantageous than the DB scheme rested on the premise that the current value of the benefits accrued on 3rd January 2004, when the complainant became a permanent employee, is greater than the current value of the DB scheme. To use the ‘current’ transfer values as a means of comparing the schemes is flawed. Pension purchase is a long-term investment and should be judged on the likely value at fruition rather than the ‘current’ surrender value. With the DC scheme there are no guarantees into the future. Therefore, the benefits of the DB scheme must be more favourable.
The complainant further contended that the “transfer value” of the DC scheme versus the transfer value of the DB scheme has little relevance as the complainant continues to be employed byeircom. The complainant accepted that if Ms. McDermott had no promotion between now and retirement, it would make little difference whether she was in the DC scheme or the DB scheme as returns on equity are likely to be similar to salary increases.
Since the statutory reduction in the vesting period down from five years to two years, it was no longer sustainable for the company to maintain that DC schemes are more appropriate for fixed term contract staff due to their short tenure in the position. The complainant maintained that the fundamental reason for the Company’s decision to put fixed term employees on the DC scheme was to transfer the risk from the company to the fixed term employee. Following the enactment of the Act, when the Unions pursued the entitlement of the DB scheme for fixed term staff, the Company altered its position and redrew the distinction between fixed term workers and permanent workers to a distinction between staff on “personal contracts” and staff on “graded contracts”.
The Union maintains that it is company policy to oblige fixed term workers to be members of the Defined Contribution scheme.
It maintains that due to the number of variables potentially involved it is not possible to say that one pension scheme will always be better than another in all circumstances and for all members, this is acknowledged by the Company in the appendix to their submission.
The Union challenged the Respondent’s contention that the real purpose of this claim is to have all employees, both graded and non-graded on the DB scheme.
The complainant contended that what was generated under the DC scheme was the value of the employer and employee contributions, and this will not be revisited. In contrast, under the DB scheme, the complainant would benefit according to her service in the scheme. If the complainant were to leave her employment in 5/6 years time, the six months at issue here would grow in value until she reaches age 60.
The Respondent’s Case
During the period of consideration, 14th July 2003 to 3rd January 2004, the complainant was employed initially as a Project Manager and subsequently as Network Deployment Engineer; neither position are graded positions within theeircomstaffing structure. Therefore, as her post was a non-graded post, she continued in the DC scheme, which she had first joined when she was employed as a fixed term employee and which at the time, was the only scheme available to her.
In the DB scheme the value is calculated by reference to the accrued benefit earned in respect of completed pensionable service, whereas with the DC scheme the value is the full amount of the individual retirement account. All other things being equal (level of benefits/contributions) the DC formula tends to be more favourable for early leavers, and it offers flexibility, visibility and portability.
If the complainant had been permitted to join the DB scheme for the period under consideration, it would not have been of benefit to her when compared to the DC scheme. The transfer payment out of the DB scheme would have been less beneficial.
-The transfer value of the DC fund was €2167, (Ms. McDermott contributed €718).
-The transfer value out of the DB scheme would have been €827 (her contribution would have been €428), this transfer value only becomes ‘real’ if she has two years service in the DB scheme.
- The transfer value is the only certain figure. Accordingly, by being in the DC scheme the complainant received more favourable treatment, not less favourable treatment.
The benefits of the DB scheme during her fixed term employment would not have been superior to the benefits of the DC scheme. The respondent disputes the Union’s contention regarding theconventional wisdomin relation to the respective benefits of the DB and the DC schemes - while it may be held that most DB schemes are superior to DC schemes,eircom’sDC scheme is not a conventional scheme. The average employer contribution to DC schemes is 6%, whereaseircom’scontribution is 9.7%. Furthermore, the DC scheme allows the member significant benefits for those with less than 2 years service. In contrast, the DB scheme applies only to the excess of actual salary over twice the social welfare pension. Post retirement increases in the DB scheme are at the discretion of the company.
Benefit does not vest in a DB scheme, until the member has two years service, it is only then that it becomes portable or preserved. An employee, who ceases to be a member of a DB scheme within two years of joining has only one option – to withdraw in cash the value of his or her own contributions, without any employer contribution or investment return. If the person does not leaveeircombut instead transfers into the DC scheme, he/she will be entitled to a transfer payment of the value of both the company’s and their own contributions. Whereas, the employee on a DC scheme who chooses to leaveeircomwithin or after two years will be entitled to retain both the employers and their own contributions plus the return on those contributions or hold full value until retirement; or transfer full value to another scheme. Accordingly, the DC scheme is more transparent and more tailored for early leavers.
eircomhas had a tradition of having very large numbers of fixed term staff working in the call centre who resign before they have 2 years service; this high level of turnover is reflected in the fact that as at 31st March 2003, the DC scheme has approximately 650 active members along with 610 deferred members.
The respondent’s pension advisers stated “it is not always possible to say that scheme A will always be better than scheme B in all circumstances and for all members no matter what happens. This is even more pronounced when attempting to compare defined benefit schemes with defined contribution schemes”. It is dependent on many variables: -
-member contributions,
-lump sum death in service benefit,
-post retirement increases,
-gender difference, dependent’s pensions,
-investment risk,
-benefit guarantee,
-visibility, transferability and cross subsidization
- Their overall conclusion was that there is no conclusive argument in favour of either DB or DC schemes in principle. The point is made that whatever the common perception, a DB scheme is not always and in every circumstances preferable to a DC scheme. A better than average DC scheme could be far more beneficial for some people.
An analysis of a comparison of the two schemes for the period under consideration, giving details for the complainant vis a vis the comparators B and C, complied by the Company's pension administrators, shows the following: -- DB transfer value DC transfer value
- Ms. Mc Dermott [€827] €2167
Comparator B €1004
Comparator C €977
- Therefore, allowing for the differences in the employee contributions, the DC transfer value is €1050 higher in value than the DB transfer value.
The Respondent submits that it would be a fundamental legal flaw to take into account any period other than the period 14th July 03 to 3rd January 2004, as it would be taking retrospection prior to Act into account and therefore submits that the Court must ignore the fact that Ms. Mc Dermott had more than two years service on the date of implementation of the Act.
The Respondent maintains that it is not possible to predict with certainty the value of the DC scheme at retirement; the only hard facts are the transfer value at date of the period under consideration.
objective grounds
The respondent contends that if the treatment of the complainant was “less favourable” then it was justified on objective grounds, as the DC scheme is more appropriate to the needs of the fixed term employee. It pursues legitimate objectives and is appropriate and necessary for that purpose as has been conceded by IMPACT. At a meeting of the JCC on 20th March 2003 the Union acknowledged that the DC scheme was the more appropriate and suitable scheme for fixed term employees.
At the time the fixed term contract is entered into, it is the intention of both parties that its duration is for the purposes of the fixed term only. As the DC scheme is more individualised, it offers greater flexibility and portability, it is a more appropriate and suitable scheme for the fixed term employee.
The Law
Section 2 of the Protection of Employees (Fixed-Term Work) Act 2003 defines “conditions of employment” and “remuneration" as: -
"conditions of employment" includes conditions in respect of remuneration and matters relating thereto (and, in relation to any pension scheme or arrangement, includes conditions for membership of the scheme or arrangement and entitlement to rights thereunder and conditions related to the making of contributions to the scheme or arrangement);
"remuneration", in relation to an employee, means –
(a) any consideration, whether in cash or in kind, which the employee receives, directly or indirectly, from the employer in respect of the employment, and
(b) any amounts the employee will be entitled to receive on foot of any pension scheme or arrangement;
Conditions of employment for fixed-term employees
Section 6. - (1) Subject to subsections (2) and (5), a fixed-term employee shall not, in respect of his or her conditions of employment, be treated in a less favourable manner than a comparable permanent employee.
(2) If treating a fixed-term employee, in respect of a particular condition of employment, in a less favourable manner than a comparable permanent employee can be justified on objective grounds then that employee may, notwithstanding subsection (1), be so treated.
Objective grounds for less favourable treatment
- 7. - (1)A ground shall not be regarded as an objective ground for the purposes of any provision of this Part unless it is based on considerations other than the status of the employee concerned as a fixed-term employee and the less favourable treatment which it involves for that employee (which treatment may include the renewal of a fixed-term employee's contract for a further fixed term) is for the purpose of achieving a legitimate objective of the employer and such treatment is appropriate and necessary for that purpose.
- (2) Where, as regards any term of his or her contract, a fixed-term employee is treated by his or her employer in a less favourable manner than a comparable permanent employee, the treatment in question shall (for the purposes of section 6(2)) be regarded as justified on objective grounds, if the terms of the fixed-term employee's contract of employment, taken as a whole, are at least as favourable as the terms of the comparable permanent employee's contract of employment.
- Court Findings
Certain facts are not in dispute between the parties: -
- Court Findings
- the comparators are valid comparators within the meaning of the Act (the Union subsequently dropped comparator A),
- the period under consideration by the Court is 14th July 03 to 3rd January 2004,
- The question the Court must address is whether the complainant was treated less favourably than the comparators during the period under consideration, in terms of her conditions of employment, specifically the pension scheme assigned to her.
The Act defines [pension] "remuneration" as -any amounts the employee will be entitled to receive on foot of any pension scheme or arrangement.
It is common case between the parties that if one examined the position in January 2004 on the basis that the complainants fixed term contract had ended, the transfer value in the DC scheme was greater than those in the DB Scheme. In addition the respondent gave evidence to the effect that, if the complainant had been in a DB scheme and left the benefits to accumulate but not continued employment witheircom, the pension received would have been less than that received under the DC Scheme. The complainant in essence was stating is that if she got the normal promotions and remained witheircomuntil she was 60, then the effect of being in the DC Scheme between July 2003 and January 2004 would be to lessen her pension by approximately €500 per annum.
In order to address that issue, the Court must take a speculative approach to the issue. When all contingencies are examined for both the complainant and the comparators, is pension benefit at retirement for the period under consideration likely to be greater from the DB scheme or the DC scheme?
Both sides provided actuarial predictions. However, both sides also agreed that it would be impossible to say with certainty whether her treatment under the DC scheme would have been more or less favourable that under the DB scheme. Therefore, the information provided does not assist the Court in reaching a decision.
The Court accepts that there is a difference in the treatment of the fixed-term complainant and the named comparators; the former is on a DC scheme while the latter are on a DB scheme. When the complainant was first employed byeircom, if she had been offered a permanent contract she would have been placed on the DB scheme. Therefore, the decision to place her on the DC scheme arose solely on the basis of her status as a fixed term employee and this remained the position during the period complained of.
However, in order to demonstrate that placing her on the DC scheme constituted unfavourable treatment, the complainant has had to rely on a series of assumptions none of which may come to pass. Accordingly, it is impossible for this Court to predict whether her treatment during the period 14th July 03 to 3rd January 2004 was less favourable than that which applied to the named comparators in terms of their membership of the pension schemes. Any potential loss of benefit will only crystallise when her employment terminates or she retires, therefore, any contingent detriment can only be measured when benefit become payable at retirement. In reaching its conclusion, the Court accepts that it is generally accepted that membership of a DB scheme is more beneficial than membership of a DC scheme. The contribution level into DB scheme is usually much greater than the contribution level of DC schemes. However, the level of both employer and employee contributions undereircom’sDC scheme is more beneficial that the norm and indeed equals the levels of contributions undereircom’sDB scheme.
Consequently, at this point in time, the Court finds that, on the balance of probabilities, the complainant has not proved that placing her in the DC Scheme constituted unfavourable treatment contrary to section 6 of the Protection of Employees (Fixed-Term Work) Act, 2003 (the Act).
Determination
The complainant’s appeal is not well founded. Accordingly, the Court upholds the Rights Commissioner’s decision and disallows the appeal.
The Court so determines.
- The question the Court must address is whether the complainant was treated less favourably than the comparators during the period under consideration, in terms of her conditions of employment, specifically the pension scheme assigned to her.
Signed on behalf of the Labour Court
Caroline Jenkinson
16th February, 2005______________________
JO'CDeputy Chairman
NOTE
Enquiries concerning this Determination should be addressed to Joanne O'Connor, Court Secretary.