Auto-enrolment and the ban on inducing opt-outs – what is your ‘sole or main purpose’?

Helen Powell

One of the questions that comes up most frequently in relation to auto-enrolment is whether proposed action by an employer might breach the ban on inducing workers to opt out of pension saving. This comes up in the context of employers wanting to offer flexible benefit arrangements, so that workers can arrange particular elements of their remuneration package to suit their own preferences, and of reduced annual allowances/global working arrangements heightening interest in cash alternatives.

The ban under the Pensions Act 2008 is quite narrowly drawn – it applies where an employer takes any action for the sole or main purpose of inducing an individual to give an opt-out notice (that is, within 30 days of auto-enrolment) or end active membership of a scheme. The Regulator’s guidance emphasises that in applying the test, it will look at the surrounding context, including the employer’s communications to workers and the consequences for workers and the employer.

The phrase ‘sole or main purpose’ has recently come up in another context, in an Employment Appeal Tribunal case in which an employer argued that its attempts to negotiate directly with employees were not for the ‘sole or main purpose’ of inducing them to agree terms outside a collective agreement negotiated by or on behalf of a recognised trade union.

In analysing the ‘sole or main purpose’ test, the Employment Appeal Tribunal (EAT) stated:

‘Although inevitably in cases that depend on questions of fact and degree there is less certainty as to the outcome and more risk, we consider that employers who act reasonably and rationally for proper purposes and are able to demonstrate that their primary purpose in making individual offers is a genuine business purpose, retain the ability to make offers directly to their workforce without fear of contravening [the sole or main purpose test]’.

The EAT also distinguished between the employer’s purpose – the ‘aim, object or desire which the employer subjectively seeks to achieve’ – and the effect that acceptance of its offer would have, commenting that ‘this is essentially a factual question to be assessed by reference to any evidence that sheds light on the employer’s sole or main purpose and any inferences that can properly be drawn from that evidence and the findings of fact properly made’.

In line with the Regulator’s long-standing guidance, it will be important for employers to document their purpose and decision-making processes, and to ensure that communications are fair, clear and neutral so that workers can make an informed choice – where there is a genuine business purpose, the ban on inducements should not pose a threat to a properly-intentioned employer.

Helen Powell is Counsel at Allen & Overy LLP.

Comments published on Pensions Talk do not necessarily reflect the views of Allen & Overy or its clients.

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