In Cockram v Air Products plc an employee was denied good leaver status where he retired prior to a "customary retirement age", with the consequence that he forfeited valuable unvested share options. The employer admitted the decision was directly age discriminatory, but succeeded in arguing that it could be justified. However, on appeal, the EAT held that the Employment Tribunal had failed to sufficiently explain why it had accepted the legitimate aims put forward by the employer. Further, the Tribunal had failed to explain its reasoning on proportionality. The case has been remitted to a freshly constituted Tribunal to decide whether the discrimination can be justified.

Background

Section 13 of the Equality Act 2010 prohibits less favourable treatment on the grounds of age.  However, unlike other protected characteristics, direct discrimination on the grounds of age is capable of justification.

In the case of Seldon v Clarkson, Wright and Jakes [2012] it was held that, in the context of direct age discrimination, the legitimate aims identified must pursue "social policy objectives".  In other words they must be of a public interest nature, rather than purely individual reasons particular to the employer such as cost reduction.  Further, any directly discriminatory measure must be appropriate to achieve the identified legitimate aim, and it must be necessary to do so.

Facts

The Respondent is an international company operating in around 50 countries.  Its parent company is based in the USA.  The Claimant was employed by the Respondent in the UK from 1 August 1988 until 28 February 2013.

The Claimant participated in the Respondent's Long Term Incentive Plan (LTIP), under which  certain employees were awarded share options on a discretionary basis.  The general rule was that any unvested options would be forfeited when the employee left the Respondent's employment, save where he was a "good leaver".  The good leaver situations were defined as death, disability and retirement.  "Retirement" was defined as leaving employment: "on or after a customary retirement age for the participant's location with a fully vested right to…immediate benefits under a retirement income plan".  "Customary retirement age" was not defined.

The Claimant's employment ended when he was aged 50 (there was a background dispute; you can read more about this in our report from June 2014 here).

The Claimant was a member of Respondent's defined benefits pension scheme (the DB scheme).  Under the DB scheme, the Claimant was entitled to take his pension from the age of 50, which  he did.  At the time that his employment ended, the Claimant had unvested options under the LTIP.  The value of the unvested options was undetermined.  The Respondent estimated they had a value of £27,000 and the Claimant estimated they had a value of £245,000. 

The fact that the Claimant had left employment and taken his pension suggested that he should have been treated as a good leaver for the purpose of his unvested options.  However, the Respondent did not allow the Claimant to retain the unvested options because he had not reached the age of 55.  The Respondent's position was that 55 had become the "customary retirement age" in the UK following the replacement of the DB scheme with a defined contribution pension scheme (the DC scheme) in 2005.  In reaching this decision, the Respondent took into account the fact that at the time of his resignation, the Claimant had thought that he the retirement age for the purposes of the DB scheme was 55, rather than 50.  Therefore, at the point of his resignation, the Claimant would have understood that he was leaving before the customary retirement age in the UK, meaning he would lose his unvested options.

Employment Tribunal decision

The Claimant commenced Employment Tribunal proceedings, alleging that the refusal of the LTIP benefits was discriminatory on the grounds of age.  The Respondent admitted age discrimination but submitted that this could be justified. 

Legitimate aims:

The Respondent asserted that the decision to refuse the LTIP benefits pursued the following legitimate aims:

  • inter-generational fairness and consistency;
  • rewarding experience and loyalty; and
  • ensuring a mix of generations and staff so as to promote the exchange of experience and new ideas.

The Respondent argued that it wished to achieve consistency of treatment between those in the DB scheme and those in the DC scheme.  The DB scheme was the more generous scheme and the members tended to be older than those in the DC scheme.  The Respondent argued that this put members of the DB scheme, such as the Claimant, in a more favourable position that members of the DC scheme.   It was argued that the aim of the discriminatory decision to refuse LTIP benefits to the Claimant was to achieve intergenerational fairness.

Proportionality:

The Tribunal accepted the legitimate aims and went on find that the discriminatory measure was an appropriate and necessary means of achieving those aims.  In particular, it concluded that treating all employees the same no matter which pension scheme they were in achieved inter-generational fairness.  It provided an incentive to remain in employment until age 55 and thereafter provided no disincentive to retirement.  Further, the only way to achieve consistency between members of the pension schemes was to fix the customary retirement age at 55, because this was the earliest age at which members of the DC scheme could retire.

EAT decision

The Claimant appealed on the following grounds:

  • it was an error of law to conclude that consistency of treatment was a social policy objective, rather than an individual aim peculiar to the Respondent;
  • there was insufficient evidence to show that the Respondent actually did pursue the aim of retaining employees who were entitled to LTIP benefits up to the age of 55; and
  • the Tribunal had failed to carefully scrutinise the means of achieving the legitimate aim.  The Claimant argued that the Respondent had failed to put forward relevant evidence or demonstrate that it had weighed the loss to the Claimant against the perceived benefit.

The EAT agreed that the Tribunal had fallen into error in deciding that the aim pursued was anything other than consistency of treatment of members of the two pension schemes.  It had failed to sufficiently explain why it had accepted that the aim included inter-generational fairness.  Further, the EAT held that the Tribunal had failed to sufficiently explain its reasoning on proportionality or make any findings as to the balancing of loss to Claimant compared to the aims pursued.  This was necessary notwithstanding the dispute as to the value of the unvested shares: on either estimation the sum in question was a large amount.

In the EAT's view, in cases such as this there is a need for clear findings on:

  • the aim;
  • why the aim is a legitimate aim;
  • what steps are taken in implementation; and
  • whether or not the steps taken are appropriate and reasonably necessary to achieve the aim (including a comparison of the loss caused by the aim). 

As there was no such reasoning in this case, the EAT remitted the case to a fresh Tribunal to decide whether the discrimination was justified.

Cockram v Air Products plc