Can discrimination be justified on the grounds of costs alone?

The recent Court of Appeal case of Heskett v Secretary of State for Justice (2020) considered whether an employer is justified in discriminating against an employee if the actions reduce company costs.

The facts

The claimant, Mr Craig Heskett, was employed as a probation officer in Kent. In 2016, the claimant brought proceedings against the respondent for indirect age discrimination under s.19 of the Equality Act 2010, on the basis that the rate of pay progression for his job disproportionately disadvantaged younger employees such as himself.

The rate of pay progression had been reduced drastically as a result of austerity cuts in 2010, slowing the rate of pay progression for younger employees. Before the cuts, the claimant would have reached the top of his pay band in 8-9 years. Following the cuts, if the reduced rate remained in place indefinitely, the claimant would not reach the top of the pay band until he had been in it a further 16 years.

The issues

Indirect discrimination can be justified provided it is a proportionate means of achieving a legitimate aim. Relying on Woodcock v Cumbria Primary Care Trust (2012), the claimant argued at the Employment Tribunal that the respondent’s principal driver for the pay progression reduction was to save costs and that this alone could not amount to a legitimate aim. The claimant made reference to the ‘costs plus’ principle which provides that costs can only be relied on as an element in a justification argument which involves other factors.

The Employment Tribunal drew a distinction between cost-cutting on the one hand and an absence of means on the other. It was the Tribunal’s view that the respondent was not relying on cost-cutting to justify its discriminatory conduct, but rather, the absence of means created by the significant downturn in the economic climate forced the respondent to take the actions it did. As a result, this absence of means formed the respondent’s legitimate aim. The Tribunal also held that the reduction in the rate of pay progression was a proportionate means of achieving that legitimate aim.

The claimant appealed to the Employment Appeal Tribunal, but it did not find in the claimant’s favour.

The appeal

The claimant then appealed to the Court of Appeal in respect of the distinction referred to above (amongst other grounds).

The court considered, at length, whether a ‘costs plus’ principle exists. Underhill LJ confirmed that the rule does indeed exist but that this label should be avoided as far as possible. Underhill LJ suggested a different question should be considered: whether the legitimate aim was “solely to avoid increased costs”. If the answer is yes, the aim is illegitimate. Yet, the court went on to say “an employer’s need to reduce its expenditure, and specifically its staff costs, in order to balance its books can constitute a legitimate aim for the purpose of a justification defence”.

With this in mind, the court concluded that the Employment Appeal Tribunal was correct in upholding the distinction between cutting costs and an absence of means. In the claimant’s case, the respondent was compelled to reduce its costs due to financial and economic pressures and the court concluded this was indeed legitimate. The discrimination experienced by the claimant was therefore justified.

Comment

This case could ultimately enable employers to carry out potentially discriminatory actions in the name of reducing costs provided they are suffering an absence of means. What constitutes an absence of means may well be a case for future tribunals and courts.

Whilst the validity of the ‘costs plus’ principle has been restated, this case has somewhat muddied the waters in respect of when a Claimant can successfully argue the ’costs plus’ principle in their favour. It is hard to imagine many scenarios where an employer’s discriminatory actions will be based solely on an arbitrary wish to save money. 

Generally, businesses take action in response to financial drivers, so it seems likely that the ‘absence of means’ argument will not be a tricky one for employers to push. That being said, in this case, the discriminatory action was taken in response to national government-imposed austerity measures, which were beyond the respondent’s control. This case may therefore be considered exceptional. It will be interesting to see how this argument is applied in a private sector context in the years to come.

It must also be remembered that even if an ‘absence of means’ exists so as to present a legitimate aim, actions taken by the employer must still be proportionate to achieving that legitimate aim. Employers should therefore carefully consider the options that are available to the business and the potential impact of these options on groups of people possessing protected characteristics.