Our company has a generous redundancy policy which is subject to a cap. The cap ensures that a redundant employee does not receive more than he or she would have earned had they remained in employment until retirement age. A few of our older employees are challenging the cap as being discriminatory on the grounds of age. Are they right?
Worried Wendy, HR Manager
This is a complex issue and has been the subject of various cases, most recently: Kraft Foods UK Limited v Hastie.
As I am sure you know, there are two key questions relevant to any age discrimination case:
i) is there discrimination on the grounds of age?; and
ii) if so, is this justifiable?
The imposition of a cap bites more on older employees than younger ones and so is, prima facie, discriminatory on grounds of age. However, the more involved issue is that of justification; if the discriminatory practice constitutes a proportionate means of achieving a legitimate aim then it can be justified.
A summary of the current position by the Equality and Human Rights Commission as regards justification states:
Proportionate means that:
- what the employer is doing is actually achieving its aim;
- the discriminatory effect should be significantly outweighed by the importance and benefits of the legitimate aim;
- the employer should have no reasonable alternative to the action it is taking. If the legitimate aim can be achieved by another or less discriminatory means, it should opt for that route.
- economic factors such as the needs of and the efficiency of running a business;
- the health, welfare and safety of the individual
- the particular training requirements of the job.
The main consideration in this type of case is whether the employer’s aim is legitimate: is the aim simply to save costs or to prevent an employee receiving a “windfall”? The case of Cross v British Airways (not an age discrimination case) decided that an employer seeking to justify a discriminatory practice cannot rely solely on considerations of cost. The more recent case of Loxley v BAE Systems found that preventing employees from receiving a “windfall” due to their age could be a legitimate aim. The Kraft case was very similar to the situation you describe above, in that it concerned a cap on the amount payable under a redundancy scheme to prevent employees being better off as a consequence of receiving redundancy pay than they would have been if they had worked until retirement. In that case the EAT found that it is legitimate for a redundancy scheme to incorporate a provision designed to prevent excess compensation and that the cap was a proportionate means of achieving a legitimate aim.
So, in answer to your question, whilst your older employees are correct to say that the cap is discriminatory, it is highly likely, given the Kraft case, that your company will be able to successfully defend any claim they bring on the grounds that the discriminatory practice can be justified as being a proportionate means of achieving a legitimate aim.
The case of Woodcock v Cumbria Primary Care Trust, which also turns on the issue of justification, has just been heard by the Employment Appeal Tribunal. We are currently awaiting the judgment but it will be interesting to see whether the EAT upholds the Tribunal’s decision that the age discrimination in that case was justified where the only aim appeared to be to save costs.