By Manjit S Gill QC
The recent decision of the President of the EAT, Underhill J, in HM Land Registry v Benson and others [2011] UKEAT 0197_11_1002 provides a useful example of how budgetary constraints can give rise to discrimination issues and how to analyse the distinction between legitimate aim and the means used to achieve that aim in the context of justifying indirect age discrimination.
The case concerned an early retirement/voluntary redundancy scheme. The employer had set aside a fixed sum of £12million for the scheme. The scheme was over-subscribed as many employees applied for the beneficial package on offer. The employer, wishing to maximise the numbers who could be released under the scheme, adopted costs-based selection criteria so that those employees likely to impose to greater burdens on the budget were more likely to be excluded. This ‘cheapness’ criterion, albeit approved by the recognised trade union, had an indirectly discriminatory impact on older persons, those aged between 50-54 years, in view of the higher costs of selecting them for early retirement. Five such persons alleged age discrimination. A sixth claimant, a woman on long term leave, claimed sex discrimination as she had not even been told of the scheme and so could not return to work in order to take advantage of the scheme.
At first instance the Tribunal held, in relation to the five age discrimination cases, that the aims of the scheme were legitimate for the purposes of reg 3(1) of the Employment Equality (Age) Regulations 2006. But it decided that although the costs-based criterion was the only real alternative, if there was to be a selection exercise at all, it would nevertheless have been affordable for the employers to release all those who had applied (even though this would have cost more than double the budget set aside for the scheme). The discriminatory selection criterion was therefore not a proportionate means for achieving the legitimate aim of reducing the numbers of employees.
The EAT disagreed. Its reasoning highlights the difficulty of drawing a distinction between a ‘legitimate aim’ as set out in the Regulations (or a ‘real need’ or a ‘reasonable need’ as set out in some of the case-law) and the means used to achieve it. The employer successfully argued in the EAT that setting the £12million budget was part of the legitimate aim. The EAT characterised the ET’s reasoning as being that the employer had not demonstrated a “real need” to limit its spending to £12m as it had not shown that payment of further sums was “unaffordable”. This reasoning had incorrectly imposed on the employer a requirement of “absolute necessity”, contrary to previous authorities, e.g. Cadman v HSE [2005] ICR 1546 where the Court of Appeal had said that: ‘The test does not require the employer to establish that the measure complained of was “necessary” in the sense of being the only course open to him’. The EAT therefore concluded that:
‘an employer’s decision about how to allocate his resources, and specifically his financial resources, should constitute a “real need” – or, to revert to the language of aim and means, a “legitimate aim” – even if it is shown that he could have afforded to make a different allocation with a lesser impact on the class of employee in question. To say that an employer can only establish justification if he shows that he could not make the payment in question without insolvency is to adopt a test of absolute necessity. The task of the employment tribunal is to accept the employer’s legitimate decision as to the allocation of his resources as representing a genuine “need” but to balance it against the impact complained of.’
The EAT held that, if the ET had correctly applied this approach, the ET’s unchallenged finding that the employer had ‘no other practicable alternative’ would have obliged the ET to hold the selection criteria was a proportionate means of achieving its real need or legitimate aim.
Given the way in which the case was put on appeal, the EAT was able to avoid analysis of the difficult issues arising in relation to whether or not an employer seeking to justify a discriminatory provision criterion or practice could or could not rely solely on considerations of cost. Burton J in Cross v. British Airways plc [2005] IRLR 423 and Elias J. in Redcar and Cleveland Borough Council v. Bainbridge [2008] ICR 249 appeared to suggest that something more than costs considerations were required (the costs plus approach), whereas Underhill J in Woodcock v Cumbria Primary Care Trust [2011] ICR 143 had said: “we find it hard to see the principled basis for a rule that such considerations can never by themselves constitute sufficient justification or why they need the admixture of some other element in order to be legitimised.” This issue will have to be resolved in another case.
The President also distinguished his comments in Pulham v London Borough of Barking and Dagenham [2010] ICR 333, to the effect that employers “cannot automatically justify a failure to eliminate discrimination by allocating the costs of doing so to a particular budget and then declaring that budget to be exhausted”, by concluding that the assessment of affordability discussed in Pulham was clearly not concerned with “absolute” affordability and that the comments had to be read in the context of the issue in that case where the employer was seeking to justify the continuation of a directly age-discriminatory pay provision, its only justification being that it was too expensive to remove it; it was in that context that the EAT had held that that question could not be closed off by the employer’s own decision as to what budget to allocate for that purpose. By contrast, the “budget” in the present case was the budget for a particular project – namely a redundancy programme – which was not directly discriminatory, but which, as it turned out, required a selection exercise which, as it turned out, could only practicably be done on a basis involving some indirect age discrimination.
In relation to the indirect sex discrimination case, the EAT decided that, whilst the decision to exclude employees on long-term leave could be justified, the failure to give notice of the scheme to such an employee was unfair and rendered the decision to exclude her disproportionate and unjustifiable, the employers having conceded that the practice was indirectly discriminatory.
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