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 AGE REGULATIONS

General

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).

Justification

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.

Exemption

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 EMPLOYMENT TRIBUNAL

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 APPEAL

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.

COMMENT

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.

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

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

 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.