Age discrimination was justified to prevent pension windfall

Age discrimination was justified to prevent pension windfall

Published:

Author: Kevin McCavish

The Court of Appeal has held that, in a redundancy situation, serving notice on an employee to prevent him from qualifying for a more generous pension was not age discrimination.

Facts

Nigel Woodcock was chief executive of Cumbria Primary Care Trust (the "PCT"), due to a re-organisation of health services in the North West his post disappeared. He was unsuccessful in his internal application for a new chief executive role and was told formally, in September 2006, that he was at risk of redundancy. Mr Woodcock continued to do project work for the NHS while efforts to find him alternative employment continued.

However, without prior formal consultation he was given 12 months' notice of termination on 23 May 2007. This was just short of his 49th birthday on 17 June. Had the notice been given after his birthday it would not have expired until after he was 50 and at that point he would have been entitled to take an enhanced early retirement pension. This would have resulted in a very significant additional cost being incurred by the PCT, estimated to be at least £500,000.

Mr Woodcock claimed that the decision to give him notice was direct age discrimination i.e. less favourable treatment because of his age. He argued that a younger employee would not have been served with notice until after the formal consultation process was complete.

The law

Unlike all other types of direct discrimination, age discrimination is not unlawful if it is shown to be: "a proportionate means of achieving a legitimate aim" (often referred to as "justification"). This involves two questions: is there a "legitimate aim" and, if so, was the way in which the employer sought to achieve that aim "proportionate"? Proportionality involves a balancing exercise between the needs of the employer and the effects on the employee.

Although it recognised the established legal position that avoiding costs in itself is not a legitimate aim, the employment tribunal noted that an act to avoid an employee receiving a windfall can be. Therefore, the employer had legitimately taken costs into consideration along with other issues (the so-called "costs-plus" approach).

The tribunal found that Mr Woodcock had been aware of the possibility of his dismissal for ten months, he did not consider any role other than a chief executive's job suitable for him and this was not available; consultation with Mr Woodcock would not have changed that position. Therefore it ruled that the PCT was justified in serving notice when it did and its actions were therefore not unlawful age discrimination.

The Employment Appeal Tribunal (EAT) agreed with that decision on the "very particular circumstances" of the case.

The Court of Appeal decision

The Court of Appeal also dismissed the appeal. On behalf of Mr Woodcock it had been argued that the decision to serve notice by the PCT was purely motivated by the desire to save costs and therefore could not be legitimate.

The Court of Appeal considered that there was "some degree of artificiality" about an approach which outlawed cost savings alone as a legitimate aim but allowed a "costs-plus" approach. It emphasised that an employer can not justify discriminatory treatment solely because elimination of such treatment would involve increased costs. However, it made the admittedly, subtle distinction in this case, that:

"The dismissal notice of 23 May 2007 was not served with the aim, pure and simple of dismissing Mr Woodcock before his 49th birthday in order to save the Trust the expense it would incur if he was sill in its employ at 50. [it was] genuinely served, with the aim of giving effect to the Trust's genuine decision to terminate his employment on the grounds of his redundancy."

The Court of Appeal agreed with the EAT that it was entirely legitimate for an employer to dismiss an employee who had become redundant: Mr Woodcock had "no right, entitlement or expectation" of the enhanced benefits he would have enjoyed had he still been employed at age 50.

Interestingly, the Court of Appeal considered that it would have been "irresponsible" of the PCT not to have considered the additional element of costs it would have incurred had it not timed the dismissal notice as it did.

Comment

The extent to which economic factors can justify discrimination has been hotly debated by employment lawyers and employers! For now, the Court of Appeal has preserved the orthodox position that private employers can rely on a "cost-plus" approach but not solely on the need to reduce costs in attempting to justify discrimination.

However, this case demonstrates that in the current economic situation, the Courts are likely to take a realistic view and identify non-cost factors to legitimise otherwise discriminatory acts relatively easily, in most cases.

Having said that, this case involved a unique set of facts and employers should not be lulled into thinking that they will lawfully be able to take action which amounts to discrimination just because it is cheaper than not discriminating.

We understand that permission to appeal to the Supreme Court was refused so this is likely to be the last word on the subject for a while.