Age Discrimination and Enhanced Redundancy Pay Schemes

Under the Employment Equality (Age) Regulations 2006, discrimination on age grounds can sometimes be justified. The statutory redundancy scheme is based on age and length of service but is exempted, by Section 33 of the Regulations, from being discriminatory. However, an employer’s own enhanced redundancy pay scheme is only exempt if it mirrors the statutory scheme, applying the same multiplier to all aspects of it – see Section 33(3) of the Regulations – or if it can be objectively justified as a ‘proportionate means of achieving a legitimate aim’, such as rewarding loyalty or providing assistance to older employers who might find it harder to find another job.

In Loxley v BAE Systems Land Systems (Munitions & Ordnance) Ltd., the Employment Appeal Tribunal (EAT) considered an appeal against a decision of the Employment Tribunal (ET) that BAE Systems’ contractual redundancy scheme was not discriminatory. Benefits under the scheme were only paid to employees under 60 at the date of redundancy. There was a tapering provision that applied to those over 57. When the scheme was first introduced it was compulsory to retire at age 60, so an employee over that age was entitled to benefits under the company’s pension scheme. The retirement age was later changed to 65. No amendment was made to the redundancy scheme but until 2006 employees could still take their pension from the age of 60 without penalty to their accrued benefits. In 2006, the pension scheme was modified because of financial pressure on the fund. It was agreed, with the backing of the trade union, that the age at which a pension could be claimed would be gradually raised to 65, over a three-year period, and a four per cent reduction would be applied to the pension available with regard to service after 1 April 2006.

Mr Loxley volunteered for redundancy at age 61 and was not therefore entitled to a redundancy payment. He claimed that the scheme directly discriminated against him on grounds of age. BAE Systems sought to justify that it was fair to exclude from the redundancy scheme employees in receipt of a pension.

In such cases, it is for the ET to carry out a critical examination of the facts, weighing the reasonable need of the undertaking against the discriminatory effect of the employer’s measure, in order to assess whether this is justified.

The ET rejected Mr Loxley’s claim. In its view, he had opted to be made redundant and had received what had been agreed in the 2006 agreement. The fact that the trade union had endorsed the agreement went some way to support the employer’s contention that the terms of the revised scheme were in pursuit of a legitimate aim. The principle of tapering redundancy payments had been to prevent older employees from enjoying a windfall if made redundant when they were shortly to retire anyway. As to proportionality, the ET found that BAE Systems had examined the effect of the changes on each age group to arrive at a balanced result. There was therefore no age discrimination. Mr Loxley appealed. The EAT found that the ET’s analysis was defective. It had failed to consider the question of whether or not it was proportionate to exclude the claimant from any redundancy payment altogether because he was entitled to a pension. It had made no assessment of what his pension would be or how that related to the redundancy payments. In the EAT’s view, it is neither inevitable nor in all cases justified for those in receipt of a pension to be excluded from the redundancy scheme. Justification will depend on the nature of both schemes. Although the ET had a lot of financial information on the various benefits in this case, it had not analysed that information in its judgment. Whilst it is significant that the scheme had been agreed with the support of the union, this would not of itself render an otherwise unlawful scheme lawful. The justification relied on by an employer must be subject to critical appraisal. The ET’s judgment was therefore flawed and the matter should be referred to a fresh Tribunal.

In passing judgment, the EAT referred to the fact that a number of cases on this issue had been stayed pending the outcome of this case and suggested that it would be sensible for them to be considered together, with a lead case being selected.

Aston Bond says, "Employers with a contractual redundancy pay scheme should review it to ensure that it does not discriminate or that they can justify that its terms are a proportionate means of achieving a legitimate aim. We can advise you on this or any other redundancy related matter."

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