Employment Update Age discrimination 0808

13 August 2008

Redundancy scheme terms may amount to age discrimination.

In the recent case of McCullough v ICI the claimant challenged the terms of the ICI contractual redundancy scheme. She alleged age discrimination against younger workers.

The terms of the ICI scheme, which has been in place since 1971, meant that she - being made redundant at 37 years of age with 7 years service - received 55% of ‘relevant pay’. Had she been over 50 years old she would have received 175%, because the scheme was structured to encourage older employees to retire and make way for younger personnel.

The original tribunal thought that this discrepancy was justified.

The EAT disagrees, but only to the extent of saying that the original tribunal had focussed on the aims of the employer and had not considered the balancing exercise that it is required to perform - balancing the reasonable needs of the employer as expressed in the terms of the scheme against the discriminatory effect of the scheme on the individual employee. The case has been remitted to the employment tribunal to consider this one issue.

Points to note –

  • Payments under an employer’s redundancy scheme may be (as in this case) contractual benefits to which employees are entitled if made redundant. If so, it may be easy for a claimant to allege that the terms of their entitlement are tainted by age discrimination. In the current economic climate, employers should check the terms of any policies or procedures relating to redundancy to establish whether they have any discretion in how they are applied.
  • Redundancy terms may amount to both direct and indirect age discrimination. Direct - if any payments are related directly to age. Indirect - if payments are related to years of service.
  • If faced with such an age discrimination claim, an employer’s only course of action is to argue (as ICI did here) that the terms of its redundancy scheme are justified as being a proportionate means of achieving a legitimate aim.
  • The EAT was sympathetic to many of the employer’s arguments. Encouraging and rewarding loyalty, giving larger redundancy payments to older workers, and having a redundancy policy that applied to all employees across the board and made it easier to manage change were all accepted as worthwhile aims. What was lacking in this case was any evidence that a balancing exercise had been done between those aims and the individual employee’s rights.
  • Employers will need to show to what extent any claimant is in fact disadvantaged by the terms of the scheme. Length of service as a criterion for payment may not be discriminatory depending on the age at which employees are typically recruited into the business. A tribunal will also want to know what the impact would have been on the claimant – and all the other employees – if different redundancy terms had been applied.
  • There is a statutory exemption for redundancy schemes in Regulation 33 of the Age Regulations. It did not apply in this case but Regulation 33 sets limits on the extent to which employers can vary the rules as to age/length of service that apply to statutory redundancy payments (which are outside the remit of the Age Regulations) and not face an age discrimination claim. We shall be happy to advise further on this and any other redundancy issues.