In three high profile cases recently, the courts have stressed the need for tribunals to pay particular attention to the proportionality of any accepted legitimate aims put forward by the employers when objectively justifying discriminatory measures.

MacCulloch v Imperial Chemical Industries PLC [2008] UKEAT/0119/08 - age discriminatory enhanced redundancy pay.

Loxley v BAE Systems Land Systems [2008] UKEAT/0156/08 – age discriminatory enhanced redundancy pay.

Redcar and Cleveland Borough Council v Bainbridge and ors; Surtees and ors v Middlesbrough Borough Council [2008] UKEAT/0135/06/LA – sex discriminatory pay protection for men as part of pay equalisation.

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Two recent EAT cases, MacCulloch v Imperial Chemical Industries PLC [2008], and Loxley v BAE Systems Land Systems [2008], have highlighted the importance of proportionality when an employer seeks to justify age discrimination.

Direct and indirect age discrimination can be objectively justified but, following MacCulloch, careful appraisal by an employment tribunal is needed to establish that there is both a legitimate aim and proper justification of measures adopted in pursuance of it. It is for the employer to prove that the discriminatory measures are a proportionate means of achieving the accepted legitimate aims.

ICI had a contractual redundancy payment scheme which did not mirror the statutory scheme. It was therefore not excluded from the Employment (Equality) Age Regulations 2006. When Miss MacCulloch was made redundant by ICI she was 36 years old and had 7 years' service. Under the scheme she was entitled to just over 55% of her gross annual salary as enhanced redundancy pay. This compared with, for example, 175% for someone aged between 50-57 with 10 or more years' service. Miss MacCulloch claimed both direct discrimination, because the amount was directly related to her age, and indirect discrimination because it related to years of service.

ICI claimed four legitimate aims of the scheme, but only three were accepted by the EAT. They were (1) to encourage and reward loyalty, (2) to give older workers a larger payment as they would find it much harder to find employment, and (3) having a larger payment for older workers encouraged people to leave who might not otherwise have done so, thereby making available space for more junior employees. The EAT rejected the claim that it was a legitimate aim that ICI should honour the existing scheme because it was long standing and part of their bargain with staff and trade unions.

The President of the EAT stated that proportionality requires that "an objective balance" should be struck between the discriminatory effect of the measure and the needs of the undertaking. The more serious the disparate adverse impact, the more cogent must be the justification for it. The EAT stated that "it cannot be assumed that, because the scheme in broad terms achieves certain business objectives, this necessarily establishes the justification for those differentials". The EAT decided that the tribunal had not properly considered the proportionality of the measures to the accepted legitimate aims and therefore remitted the case to the same tribunal to reconsider this point.

In Loxley, the EAT considered an appeal against a tribunal decision that an enhanced redundancy scheme was not discriminatory on the grounds of age. Payments under the scheme were again calculated by length of service and age, but the issue here was a reduction in payments for older workers. There was taper downwards once an employee reached 57, and those aged 60 or above received nothing under the scheme. The legitimate aim put forward by BAE was that those aged 60 or above would otherwise have received a windfall because they were already eligible for an immediate pension. However, the compulsory retirement and pension age was raised to 65 after the redundancy scheme was finalised, thus making justification less obvious. Although employees could take a pension at the age of 60, it was at a reduced rate of 4% per annum, and so they received less money than under the original arrangement. The EAT, applying MacCulloch, decided to remit the case to the tribunal to consider afresh the issue of proportionality in relation to justifying the discrimination. However it held that, depending on the facts of the case, it was potentially justifiable both to exclude from such a scheme those who are entitled to immediate benefits from their pension fund and to use tapering provisions.

In Redcar and Cleveland Borough Council v Bainbridge and ors; Surtees and ors v Middlesbrough Borough Council, the Court of Appeal held that pay arrangements which were put in place for predominantly male groups of staff after a job evaluation scheme were prima facie discriminatory, and could not be justified.

The evaluation led to the downgrading of a predominantly male group of staff. It was arranged that they would enjoy pay protection for a specified time to cushion the changes. However, the female employees whose jobs had been rated as equivalent under a job evaluation scheme did not receive the extra pay the male group got under pay protection. The CA found that neither employer could objectively justify these arrangements. Although the aim of providing a cushion for those workers who were to suffer a pay cut was legitimate, it was not proportionate for the Councils to exclude the female employees even though they were not having their pay cut.

The CA did accept that discriminatory pay protection could be justified when an employer was unaware of past discrimination when it entered into the arrangements, but this would depend on the facts of individual cases. In this case it was held that the actions could not be justified because the employers were, or should have been, aware of the past pay arrangements being discriminatory in nature. The decision is a very significant one for Local Authorities and Trade Unions as pay equalisation is finally rolled out for local government staff.

When an employer is considering whether to change or alter pay between different categories of employees it should be aware of the impact on other groups and establish that any ongoing discriminatory measure is a proportionate way of achieving the legitimate aim, taking into account the motive, intention and knowledge of the employer at the time of making such changes.

These cases are a useful reminder for employers of what they need to bear in mind when considering whether to maintain, change, or adopt potentially discriminatory measures. Employers with contractual redundancy schemes should examine their schemes and satisfy themselves that they can be justified. If they cannot be justified, current schemes should be replaced with those that mirror the statutory scheme and are exempt from Age regulations.

Please click here to read our recent article on 'Redundancy - Don't Forget Consultation and Age Discrimination'.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

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The original publication date for this article was 13/08/2008.