Tuesday, 3 April 2012

New judgments on retirement and age related redundancy

Employers sighs of relief with Woodcock judgment

Today, the Court of Appeal has handed down an important decision on whether employers can objectively justify age discrimination when making a significant costs saving, in a redundancy situation. It upheld the decision of the Employment Appeal Tribunal in Woodcock v Cumbria Primary Care Trust that the objective justification test was met on the facts and the Trust had not directly discriminated against the claimant. The treatment of this all important costs issue will give comfort to employers in similar circumstances.

Thanks to Rachel Dineley, employment partner and head of the equality and discrimination unit at DAC Beachcroft LLP, for sending me her comments:

“This is a sound and unsurprising decision. Crucially, the Court of Appeal has stated that an employer cannot justify discriminatory treatment “solely” because the elimination of such treatment would involve increased cost. That simply means that saving or avoiding cost will not, without more, amount to achieving of a “legitimate aim”, and reflects European law.

The reality is that it will very rarely be the case that an employer seeks to avoid or save cost without good reason. If to do so will adversely impact on employees of a particular age, the employer must be able to show that its actions are a proportionate means of achieving a legitimate aim. The challenge is in striking the balance. This decision does not provide a formula for determining what is proportionate. It could not do so. In every instance, the employer must weigh its particular issues and consider the available options. This will continue to be a difficult exercise, particularly when trying to balance the conflicting interests of groups of employees, the workforce as a whole and the needs of the business or organisation. There is no magic wand. Nonetheless, it is good news for employers.”

The facts

Mr Woodcock's role as Chief Executive of North Cumbria Primary Care Trust became redundant as a result of an NHS reorganisation. He remained employed for some months but no alternative role was found. As he was entitled to 12 months notice, and his 49th birthday was looming, the decision was taken to give him notice, to expire before his 50th birthday, when he would otherwise have benefited from an enhanced pension. This saved the Trust over £500,000. The Employment Tribunal found that the Trust's action was objectively justified in the circumstances. There was no doubt that the reason for dismissal was redundancy for which Mr Woodcock was paid £220,000. The avoidance of the additional cost in that context was a proportionate means to achieve this.

On appeal the EAT had held that the tribunal had not decided the issue on the basis of "cost alone" but had applied the "cost plus" test consistent with the 2005 case of Cross v British Airways. That’s said, in the EAT's view it could not be said that cost considerations can never by themselves constitute sufficient justification or why they need the addition of some other element in order to be legitimised. To adopt such an approach would tend to involve parties and Tribunals in artificial game-playing ("find the other factor").

The Court of Appeal has not picked up this important thread. It looked carefully at the facts and confirmed that Mr Woodcock’s treatment could not be characterised as aimed at avoiding cost and no more. If it had, it would not have been a means of achieving a legitimate aim and would not have been capable of justification.

What does this mean for employers?

While the Court’s approach leaves employers more readily able to justify their actions in comparable circumstances it will still be a tricky balancing exercise in many cases. The onus remains firmly on the employer to demonstrate that the action taken is warranted, despite the adverse impact on employees. This judgment will be of comfort to employers, including those in the increasingly costs-conscious public sector, where significant enhanced payments may become due under a pension scheme at a given age . Taking these costs into account when reaching a decision on the timing of a redundancy may be essential in seeking to balance the books .

The decision is also consistent with the EAT's decision last month in Benson v HM Land Registry, which held that in a cost -cutting exercise, conducted in conjunction with a rationalisation of the employer's office premises, nationwide, it was a matter for the employer to determine its budget for achieving a reduction in headcount, and that it could take cost into account when determining who should be selected amongst those who had volunteered for redundancy.

The practical lesson is to plan ahead, to anticipate issues and address them. In a compulsory redundancy situation that will include all the reasonable steps to be taken in seeking suitable alternative employment for affected employees whether at a comparable level or a different level, in appropriate cases.


Charles Price said...

This case may not be the vaunted watershed case it is being hyped as. This was a genuine redundancy situation and it was clear that the enhanced pension would have been a "windfall payment" which Mr Woodcock could have had no legitimate expectation of receiving on the basis that he was genuinely redundant and the contraction of the consultation process made no difference to what would have been an inevitable outcome in any event.

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