UK: Age Discrimination And Enhanced Redundancy Schemes

Last Updated: 5 November 2008
Article by Clare Cruise and Linda Farrell


Many employers operate enhanced redundancy schemes under which they agree to make payments in excess of the statutory redundancy entitlement. Such schemes may, for example, provide that statutory redundancy payments will be increased by an overall multiplier or that actual pay will be used in the calculation rather than the capped weekly pay under the statutory regime (currently £330 per week).

Despite the removal of the upper and lower age limits under the statutory scheme, statutory redundancy payments are still calculated on the basis of length of service and a multiplier linked to age bands. Whatever the basis for enhancing redundancy payments, most schemes similarly adopt calculations based on age and/or length of service. What then is the impact of the Employment Equality (Age) Regulations 2006 ("the Age Regulations") on this approach?

Calculating a benefit based on age gives rise to direct age discrimination whereas a calculation based on length of service will give rise to indirect age discrimination (as length of service is inextricably linked indirectly to age). However, both direct and indirect age discrimination is capable of being objectively justified if the discriminatory provision is a "proportionate means of achieving a legitimate aim".

Before the Age Regulations came into force, the Government reviewed the statutory scheme but decided to leave the multipliers untouched, on the basis of its conclusion that it best reflects the different economic position of the three age bands and thus amounts to a legitimate aim.

The statutory exemption

In Regulation 33 of the Age Regulations it is provided that it will not be discriminatory to pay enhanced redundancy payments provided that payments are calculated in accordance with the formula for statutory redundancy payments, with the following adjustments specifically permitted:

  • The cap on a week's pay can be removed or adjusted;

Example: actual pay is used or a multiplier is applied to the cap.

  • The "appropriate amount" allowed for each year of employment (one and a half weeks' pay, one week's pay or half a week's pay - referable to the age of the employee) can be multiplied by a figure of more than one;

Example: the amounts are increased to three weeks' pay, two weeks' pay and one week's pay.

  • A multiplier of one (or more than one) can be applied either to the basic statutory redundancy calculation or to a calculation that has been enhanced by either or both of the preceding methods.

However, enhanced redundancy schemes that have some other basis for calculation will still need to be objectively justified.

The issue of objective justification of non-exempted contractual redundancy schemes was considered by the EAT recently in two cases - MacCulloch -v- Imperial Chemical Industries plc 2008 andLoxley -v- BAE Systems Land Systems 2008.

The ICI scheme: This scheme provided that employees would receive payments calculated on the basis of age and length of service (up to a maximum of 10 years). The formula used meant that the amount due under the scheme varied significantly depending on these factors. For example, employees aged between 50 and 57 who had been with ICI for at least 10 years were entitled to 175% of their gross annual salary. However, Ms MacCulloch was made redundant by ICI when she was 36 and after 7 years' service and was entitled to only 55% of her gross salary.

The BAE Systems scheme: This scheme provided for a payment calculated on the basis of age and length of service but the amount began to taper downwards once an employee reached 57, so that those aged 60 or over were entitled to nothing. This was designed to prevent those aged 60 receiving a windfall, as they would otherwise have got both their pension and a contractual redundancy payment. The compulsory retirement age was subsequently increased to 65 (which meant that the windfall justification was less clear cut) and the pension age also increased to 65. However, employees could still take a pension from 60, subject to a 4% reduction per annum.

In both cases the EAT held that, in principle, there were legitimate aims to justify use of age and length of service in the schemes. However, there remained issues as to whether the measures adopted were a proportionate means of achieving those aims. Both cases were remitted back to the Employment Tribunals to consider these points further.

In the ICI case, the EAT helpfully gave guidance on what could constitute a legitimate aim for incorporating age as a factor in an enhanced redundancy scheme. It found that encouraging and rewarding loyalty, encouraging turnover and facilitating career progression for other staff, giving higher payments to older workers to reflect the fact that they would have more difficulties finding new jobs and reducing payments to older workers once they became entitled to pension benefits so that they did not receive a windfall, were all potentially legitimate aims.

The EAT also considered what was a proportionate means of achieving these aims. In its view, such a proportionality test should look at whether the scheme would have a detrimental effect on any individuals and, if so, the extent of the disadvantage and the impact that a different scheme would have on a range of employees. A scheme with fixed rules which did not vary with individual circumstances was in itself a feature which needed to be justified. In the EAT's view, if direct discrimination was reflected in general rules or policies then the discriminatory effect of the measure would be greater than a policy which was cast in neutral terms but had indirect discriminatory effect (e.g. length of service) and to that extent direct discrimination might be harder to justify.

In contrast to the above cases, inGalt and others -v- National Starch and Chemical Limited 2008 an Employment Tribunal has found that the employer failed to justify a non-exempt enhanced redundancy payment scheme.

The National Starch scheme: This scheme provided for a payment based on three weeks' gross pay for each year of service under age 40, and four weeks' pay for each year of service over age 40.

The Tribunal found in favour of the Claimants who successfully argued that they had been less favourably treated on the grounds of age. Although the Tribunal accepted that the employer's aims in implementing the enhanced redundancy pay formula (to ensure that there was no industrial unrest and that there was an orderly closure of its site) were legitimate, it found that the way in which it implemented these aims had not been a proportionate means of achieving them.

On the face of it, this decision seems difficult to understand and it should be noted that it has not been considered at appellate level. However, what appears to have been decisive is that, although the employers contended that older workers deserved higher redundancy payments on the grounds that they were likely to find it more difficult to find alternative employment, no evidence of this was produced and it was clear that the employers had not consciously considered this aspect of the formula during the negotiations with the recognised trade union (who, incidentally, had raised no concerns regarding the enhanced redundancy scheme).


Justification of age discrimination is still being developed both in terms of legitimate aims and proportionality, although both issues are fact-specific at the end of the day. However, to gain the best chance of arguing objective justification, the practical consequence of the above decisions is that, when drawing up a non-exempt enhanced redundancy scheme, employers should:

  • consider and identify the aims of the scheme;
  • consider and identify the justification for the specific enhancements offered;
  • assess the discriminatory impact of the scheme on a range of employees;
  • consider the impact that a different scheme might have on those employees;
  • properly explain the reasons for treating employees differently on the grounds of age and/or length of service to employees or their representatives and undertake a genuine and thorough consultation process;
  • ensure that factors relevant to the aims of the scheme and the consideration given to proportionality and the balancing exercise are recorded in contemporaneous documents.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions