Last In, First Out (LIFO)

The current position

'Last in first out' is generally regarded as a safe way of selecting for redundancy. It is objective, there is little scope for argument and tribunals have never questioned its fairness – that is until the Employment Equality (Age) Regulations 2006 (EEAR).

Picking on the shortest serving employees for redundancy tends to mean it is the younger employees who go, so arguably that amounts to indirect age discrimination.

But regulation 32 (1) states it is not unlawful age discrimination to treat somebody less favourably in relation to a benefit because of their length of service; except that age related criteria which excluded someone with more than five years' service from receiving a benefit would need to be justified on grounds that it fulfils a business need, for example by encouraging loyalty, motivation or rewarding experience.

Rolls Royce decision

In Rolls Royce PLC v Unite, the employer used five criteria to select for redundancy:

1. achievement of objectives
2. self motivation
3. expertise/knowledge
4. versatility/application of knowledge
5. wider contribution to the team

plus one point for every year of continuous service

Unite wanted to retain length of service as a criterion. Rolls Royce was worried that this might amount to unlawful age discrimination, so they applied to the High Court for a declaration to decide who was right.

The Court said that length of service is likely to be a fair indicator of both loyalty and experience. It protects employees from being put into the job market when they are likely to find it harder to gain employment. Awarding points for service was clearly a benefit (one of the conditions for the length of service exemption in regulation 32 to apply) to the employees as their employment position was more secure. It fulfilled a business need as employee's skills and loyalty were retained. So using length of service as one of the criteria did not amount to age discrimination.

But the court went on to say that using length of service on its own (LIFO) might not have been justifiable.

So the position now seems to be that using length of service is not age discriminatory so long as that is only one of a number of factors; but that may not be the case if length of service is the only factor. However, only people who are selected for redundancy under LIFO with five years' service or more can complain of age discrimination, because of regulation 32 – which is not going to happen very often.

Advice to employers

1. Criteria for selection for redundancy should be objective
2. Using length of service along with other criteria is almost certainly not age discriminatory
3. Employers seeking to use LIFO must demonstrate its use is objectively justified and that the reasons pursue a legitimate aim such as:

• encouraging and rewarding staff loyalty

• retaining skills and knowledge that have been developed over time

Where LIFO is used as part of wider selection criteria considering the various qualities of staff being considered for redundancy, there is less likely to be a successful challenge if an employer can show its use and application are justifiable.

What is proportionate and legitimate will be a question for the tribunal. There have been very few cases where the legality of redundancy selection criteria in relation to EEAR 2006 have been called into question. While further judicial guidance would be welcome, if the advice above is followed, along with a strict consultation process, the risk to employers of a successful age discrimination claim should be reduced.

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.