BAE operated an enhanced redundancy scheme under which employees could receive up to 78 weeks' pay. However, an employee could not receive more in redundancy pay than they would have earned if they had stayed at work until 65, the age at which employees could take an occupational pension. This meant that redundancy payments were reduced once an employee was 63 and a half and that employees aged 65 or over were not eligible for an enhanced redundancy payment.
Mr McDowell was made redundant after his 65th birthday and only received a statutory redundancy payment. An employment tribunal upheld his claim that the cap and taper feature of the redundancy scheme was direct age discrimination. BAE appealed against that decision, arguing that the scheme was a proportionate means of achieving a legitimate aim. In particular, the cap and taper were designed to prevent someone obtaining a “windfall” from receiving redundancy pay when they would not in fact have continued to work. Earlier cases had accepted that preventing a windfall was “manifestly justified”.
The EAT rejected the appeal because this was not in fact a “windfall” case. Following the removal of the default retirement age, employers can no longer assume that individuals will stop working at a particular age. The essence of a “windfall” justification is that a redundancy payment compensates an employee for loss of a non-existing earning capacity. In this case Mr McDowell wanted to keep working for a further eighteen months and BAE had not adduced any evidence of the age at which employees typically chose to retire and draw their pensions.
Although the "windfall" justification argument failed, BAE's redundancy scheme pursued a number of legitimate aims. The taper and cap were simply part of the overall scheme and the tribunal had to assess whether the scheme as a whole achieved those aims in a proportionate way. Because the tribunal had not stepped back and reviewed the cap and taper in the context of the scheme as a whole, the employer's appeal against the finding of age discrimination succeeded. It seems likely that the justification argument will be remitted to the employment tribunal.