The Court of Appeal has held that indirect age discrimination can potentially be justified. This counts on the basis of saving costs to balance company books.
The Equality Act 2010 outlines the definition for indirect age discrimination. This is when a provision, criterion or practice (PCP) is applied to everyone and is apparently age neutral, but which:
- disadvantages more people in one age group than in another
- causes an individual employee a disadvantage
- is not justifiable as ‘a proportionate means of achieving a legitimate aim’.
Previously, a number of cases have addressed whether a discriminatory policy can be justified on the basis of saving costs. Generally, such a reason is not held to be legitimate. The Employment Appeal Tribunal (EAT) held in Cross and others v British Airways plc that cost saving cannot on its own amount to a legitimate aim. However, it may be taken into account alongside other factors. This is known as the ‘cost-plus’ rule.
In the case of Department of Constitutional Affairs v O’Brien, the Supreme Court found that the sound management of public finances may constitute a legitimate aim. However, it won’t be legitimate to simply try to save money through deliberate discrimination.
Heskett v Secretary of State for Justice
In this case, the employee had worked in the public sector for some time as a probation officer.
In 2010, a pay rise limitation was implemented by the Treasury. In response to this, the organisation he worked for introduced a new pay progression policy. In the past probation officers could progress three points up the pay scale per year. The new policy meant that they could only progress one pay point per year.
From the employee’s perspective, this meant it would take him 23 years to progress to the top of his pay band. Colleagues that had already attained this started to earn significantly more than those below them. Individuals in this position tended to be over 50. As a result, the employee claimed indirect age discrimination. He argued employees under 50 in his position were being placed at a disadvantage by the new policy.
The employment tribunal (ET) agreed that the policy did indirectly discriminate against the claimant on the basis of his age. However, they dismissed his claim as they found it had amounted to a proportionate means of achieving a legitimate aim.
The tribunal explained that although the aim of the respondent had been to cut costs, there was also other factors to consider. The policy had been designed to enable to them to ‘live with their means’ and was only intended to be temporary. The policy couldn’t be justified on a long-term basis. However, it was a proportionate short-term response to the financial situation the respondent was facing.
The employee appealed.
The EAT dismissed his appeal. In forming their decision, they held that it was legitimate for an organisation, such as the respondent, to seek to break even.
The employee appealed again to the Court of Appeal. They argued that the respondent’s argument was purely based on saving costs. This was contrary to the law, and there was no evidence that this policy was short-term. He argued that this meant the tribunal had erred by relying on this in their judgement.
Court of Appeal
The Court dismissed the appeal on all grounds.
They considered previous case law on the ‘cost-plus’ principle. Ultimately, they agreed that a respondent cannot justify discrimination in pay purely on cost saving grounds. Therefore, what needed to be determined was if their actions were simply to save money. The Court held that the ‘cost-plus’ label, whilst not incorrect, could serve to turn attention from this key question.
The Court also held that the need to balance company books could be considered a legitimate aim. The tribunal had been correct to place weight upon the situation facing the organisation. The next thing to determine was whether an alternative policy could be implemented. In other words, could they have removed the discriminatory aspect.
Ultimately, the Court concluded that there was no reason why the argument that ‘short-term’ urgent measures that had a discriminatory element could not be justified depending on the circumstances.
They rejected the idea that there was no evidence this policy would be temporary. This was because it had come about as a direct result of the financial situation of the Treasury. As a result, it was not expected to be a permanent issue.
Note for employers
This case does seem to confirm that the ‘cost-plus’ rule remains in place. This case would never have overturned it anyway due to the previous Supreme Court ruling. Therefore, the ‘cost-plus’ rule could be a defence within indirect discrimination claims. However, this will be very case specific, as seen here. Simply attempting to save money will not fall under this bracket.
They key issue to remember is that whilst balancing the books can be a legitimate aim, organisations will still need to demonstrate they are managing their budget carefully. They will also need to show that other, non-discriminatory solutions have been considered.
If you're concerned with how this ruling may affect your business, speak to a Croner expert today on 01455 858 132.
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