UK: Age Discrimination And Enhanced Redundancy Schemes

Last Updated: 11 November 2008

Two recent decisions of the Employment Appeal Tribunal (EAT) provide guidance on what employers must do in order to justify age discrimination



The Employment Equality (Age Regulations) 2006 (the "Regulations") outlaw direct age discrimination (where a person (A) treats another person (B) less favourably than another on grounds of B's age) and indirect discrimination (where A applies to B a provision, criterion or practice which he applies equally to others but which puts people of B's age group at a particular disadvantage and specifically does put B at that disadvantage). So, in the context of a redundancy scheme, if B is 30, to make a higher award to those over 40 would be directly discriminatory against B; and to use a higher multiplier for those with 10 years' service could also be indirectly discriminatory against B (because she is less likely to have been at work that long).


A's acts will not be unlawful if A is able to justify them by showing that they were a proportionate means of achieving a legitimate aim. Unlike the other strands of discrimination law, direct as well as indirect age discrimination may be justified in this manner.


Regulation 33 provides an exemption for redundancy schemes which broadly mirror (but are more generous than) the conditions under the statutory redundancy payments scheme. These schemes will be lawful even though they do give different benefits depending on age.


The Facts

In MacCulloch -v- ICI plc, Ms MacCulloch was almost 37 and had seven years and eight months' service when she was made redundant. Applying criteria based on both age and length of service (capped at 10 years), ICI awarded her just over 55% of her annual salary. A 40 year old with 10 years' service would have received more than 97%.

In Loxley -v- BAE Systems Land Systems (Munitions & Ordnance) Ltd, when the employer's scheme was originally set up, the employer's compulsory retirement age was 60, at which time the employee could draw a full pension under the final salary scheme. Hence, awards were made only up to the age of 60, and there were tapering provisions for ages 57 to 60 to avoid any windfall to those able to draw an early pension and also receive payments under the redundancy scheme. Mr Loxley took voluntary redundancy aged 61 (by which time the retirement age had increased to 65) and he was excluded from the scheme (although a new structure for future redundancies had been negotiated with the unions which would pay some additional benefits up to 65). If he had been 57, he would have received two years' salary and six months' pay in lieu.

In both cases, it was admitted that discrimination had occurred. Therefore the issue to resolve was whether the employers could justify their actions.

The Decision

In MacCulloch, the employer argued that the scheme rewarded loyalty, and was structured in a way which cushioned the effect of redundancy on older workers (who were more vulnerable in the job market) by giving them larger payments; it was a generous scheme which was popular with the workforce, so that it fulfilled its aim in encouraging voluntary redundancies. Indeed, ICI had consulted over the possibility of creating a scheme falling within Regulation 33, but this had been strongly opposed. The Tribunal accepted that these were legitimate aims and ruled in favour of the employer.

In Loxley, the Tribunal held that it was a legitimate aim for the employer to divide up the financial pot available to ensure an equitable distribution of payments amongst the workforce. In doing that, it was entitled to have regard to the fact that employees over the age of 60 could draw an immediate pension, therefore the discrimination that had taken place was not unlawful.

Both claimants appealed.


The Test For Justification

In both cases, the EAT set out the test that an employer must meet in order to justify discriminatory treatment or practices. The Tribunal (and not the employer) must be satisfied that the measures:

  • are appropriate with a view to achieving the objectives pursued; and
  • are reasonably necessary to achieve that aim.

In considering the question of proportionality, the Tribunal must balance objectively the discriminatory effect of the measure in question with the needs of the undertaking, carrying out a critical analysis which must be reflected in its decision.

The EAT commented that it considered the test for both direct and indirect discrimination to be the same (bearing in mind that the case law to date has been concerned with indirect discrimination only). The ECJ's decision on a similar point in the Heyday case is expected shortly (although the Advocate-General's Opinion published this week suggests that the ECJ is likely to take a similar approach to the EAT).

The Decision

The EAT held that, although the aims put forward by the employers were legitimate, the Tribunal had failed properly to assess whether their measures were proportionate. In MacCulloch, it should have demonstrated a "considered recognition of the degree of difference in the payment made to the Claimant and the comparator, and an assessment of whether [that degree of difference] was reasonably necessary to achieve the objectives of the scheme". However, in performing that exercise, it could "have regard to the impact which a different scheme would have on the whole range of employees".

In Loxley, the Tribunal should have "grappled with the question whether it was proportionate to exclude the claimant from any redundancy payment altogether because of his entitlement to a pension" but "nowhere ... is there any assessment of what his pension would be, or how that related to the redundancy payments". However, the EAT did comment that tapering provisions where an employee is able to receive immediate pension benefits "will, we suspect, be very readily justified".

Both cases were remitted to the Tribunal to be heard again.


Following these decisions, employers must be even more careful to justify redundancy schemes that do not follow the statutory scheme.

The Employment Tribunal has since considered an enhanced redundancy scheme in Galt & Others -v- National Starch & Chemical Limited (another ICI group company), accepting that the legitimate aim of the payments under the scheme was to avoid the possibility of industrial unrest; but finding that the scheme was still unlawful as it was not a proportionate way of achieving that aim (the employer had not consciously addressed the age differential when considering the need to avoid the unrest).

What do these cases mean for employers? If you have a redundancy scheme that pays more than statutory redundancy, you should first look at whether the age bands and criteria you use mirror those of the statutory scheme. If they do, your scheme will probably be lawful under Regulation 33. If your criteria do not mirror the statutory scheme, and benefits are different for employees of different ages, it discriminates on grounds of age and you should then consider whether that discrimination can be justified. First consider the aims of the scheme, and whether they are legitimate. The cases show that aims such as rewarding loyalty, cushioning the impact for older employees, avoiding a windfall to some employees, and reducing the likelihood of industrial unrest are likely to be legitimate. The next stage is to consider whether the details of the scheme itself are reasonably necessary to achieve those aims.

A practical way of going about this would be to produce a series of worked out examples to demonstrate how you have carved up the financial pot, and to document how you reached the decision to treat (or, where the scheme was drawn up some time ago, to continue to treat) certain age groups differently to achieve your purpose. Also it may be worth consulting the employees as a group: the EAT did comment that, although it could not on its own make an unlawful act lawful, the fact that a provision has been agreed with employees collectively could be a relevant consideration to weigh when considering proportionality.

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.

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