In MacCulloch v ICI, the EAT, in the context of considering the validity of a contractual redundancy scheme, has offered useful guidance as to when age discrimination may be objectively justified.
Since the introduction of the Employment (Equality) Age Regulations 2006 it has been unlawful for employers to discriminate on the grounds of age. Employers can defend both direct and indirect age discrimination claims by demonstrating that the discriminatory treatment or provision can be objectively justified. The test for establishing objective justification is that the treatment or provision is a proportionate means of achieving a legitimate aim.
ICI had a contractual redundancy policy that entitled employees to an enhanced redundancy payment. The amount of the payment was calculated by reference to an employee's age and length of service. At the date of her redundancy Ms MacCulloch was 36 years old and had seven years service. She was entitled to a redundancy payment of 55% of her annual salary. In contrast, an employee aged 50 with 10 years length of service would have been entitled to 175% of their annual salary. Ms MacCulloch claimed that the redundancy scheme directly and indirectly discriminated against her on the grounds of age, as she would have been entitled to a higher payment if she had been older or had longer service.
The EAT held that the tribunal had failed to properly consider whether the redundancy policy was a proportionate means of achieving these aims. It referred the case back to the tribunal to consider the issue of proportionality.
In discussing the legitimate aims considered by the tribunal, the EAT provided some useful comments on what may amount to objective justification of age discrimination. The EAT found that, in principle, the following may be legitimate aims:
- rewarding loyalty;
- encouraging employee turnover and preventing "blockages" in the progression of employees by offering enhanced benefits to older employees;
- protecting older employees by offering them a higher payout, as older employees may find it harder to find subsequent employment.
However, honouring contractual promises will not be a legitimate aim, where the contractual promise is itself discriminatory. Neither will generosity to employees in itself be a legitimate aim without further justification.
Impact on employers
Employers who offer enhanced redundancy schemes should note that the Age Regulations contain a specific exemption for such schemes where payments are calculated in the same way as standard statutory redundancy payments. Where, as in this case, the enhanced payment is calculated according to a different formula, employers may have to objectively justify any direct or indirect discrimination on the grounds of age. The MacCulloch case offers some useful guidance as to the type of reasons that a tribunal will consider to be legitimate aims. However, even where a legitimate aim is identified, the employer must then ensure that the treatment of practice goes no further than necessary to achieve this aim, to be considered proportionate.