You are here
Age Discrimination: dismissal to avoid expensive enhanced pension rights
Latest Articles by Author
Avoidance of cost is not, in itself, a legitimate aim capable of objectively justifying discrimination says the Court of Appeal; employers must find a ‘cost-plus’ justification. However, on the unusual facts of this case, an employer was objectively justified in short-cutting a redundancy process in order to avoid the employee obtaining the ‘windfall’ of reaching age 50, at which point he would become entitled to an expensive enhanced pension.
Direct age discrimination, unlike other forms of direct discrimination, may be justified and lawful if an employer can demonstrate that the less favourable treatment amounts to a proportionate means of achieving a legitimate aim.
The EAT has previously held that the avoidance of cost is not, in itself, a legitimate aim but that it can be one factor provided there are other factors; a principle known as the ‘cost-plus’ approach (Cross and others v British Airways Plc  IRLR 423).
The Court of Appeal had to consider whether an employer was justified in short-cutting a redundancy process, in order to avoid an expensive imminent pension liability. The case involved the chief executive of a Primary Care Trust (PCT). It was decided that several PCTs would merge. The chief executives of the various PCTs had to apply for new chief executive roles and redeployment support was given. Their employment was guaranteed until Summer 2007 and there was an expectation that notice would be given so that those unsuccessful in securing new roles would be made redundant on that date.
The chief executive of Cumbria PCT was unsuccessful in his applications for other roles. As a result, he was informed, in September 2006, that he was formally at risk of redundancy and that he would be given 12 months’ contractual notice of dismissal. It later appeared that alternative employment would be found and so the giving of that notice was delayed. However, when by April 2007, it was clear no alternative employment could be found, he was invited to a meeting to start the redundancy process.
The earliest mutually convenient date they could agree upon was in early June 2007. The PCT believed that he was trying to delay so that his employment would end after his 50th birthday in mid-June 2008, when he would become entitled to an enhanced pension, at an additional cost of £1/2 -£1million. Seeking to avoid this, on 22nd May 2008, the PCT gave him 12 months’ notice that, absent alternative employment, he would be made redundant. This meant that the formal redundancy consultation meeting took place after he had been given notice.
The chief executive brought a direct age discrimination claim and the tribunal held that he had been treated less favourably on the grounds of age. However, the tribunal went on to find that treatment was justified; the giving of the notice early was a proportionate means of achieving a legitimate aim.
The EAT dismissed his appeal. The tribunal had identified a ‘cost-plus’ justification for the discrimination. His role had become genuinely redundant in early 2006; the PCT had already been generous in not giving one year's notice of dismissal a year earlier and he could have had no legitimate expectation of notice not being given by May 2007 at the latest. The fact he was within "striking distance" of his enhanced pension rights was an unexpected windfall which the PCT could legitimately seek to prevent. The EAT went on to make some comments which questioned the correctness of the ‘cost-plus’ approach.
Court of Appeal Decision
The chief executive appealed again and the Court of Appeal upheld the tribunal’s decision. The Court approved the approach taken by the EAT in Cross and its conclusion that the avoidance of cost by employers is not, in itself, a legitimate aim; employers must find a ‘cost-plus’ justification.
However, on the unusual facts of this case, the PCT’s actions could not be characterised as having been solely aimed at saving or avoiding costs and the dismissal had been justified as a proportionate means of achieving the legitimate aim of implementing his redundancy. What does this mean in practice?
- The decision is a little surprising because, at first glance, the sole reason for the early notice of dismissal having been given was cost. However, it does not mean that every employer can dismiss early to avoid incurring pension liability; the fact that the redundancy process had already been significantly delayed, that he had no legitimate expectation of obtaining the enhanced pension, and that the costly enhancement would be paid for by the public purse are all factors relevant to the decision.
- Unfortunately, when considering the ‘cost-plus’ approach, the Court did not consider the often artificial distinction between cost alone (which cannot be justified) and cost mixed with other factors (which can be justified).
Woodcock v Cumbria Primary Care Trust  EWCA Civ 330