The issue as to the age discriminatory effect of redundancy payments and whether schemes which do not follow the statutory exemptions can be justified has been the subject of recent debate again following separate decisions at the Employment Appeal Tribunal (“EAT”) and  Court of Justice of the European Union  (“ECJ”), with contrasting circumstances.

Lockwood v Department of Work and Pensions and another [2013] UKEAT 0094/12/0402 – Lower payments for younger employees

In Lockwood, a Civil Service voluntary severance scheme paid older leavers more than younger leavers.  The Claimant, Ms Lockwood, was aged 26 at the date of termination and had 8 years’ service.  Her severance payment was around 61% of that of an employee with the same service aged over 35.

The EAT upheld the Employment Tribunal’s judgment that this was permissible and did not constitute unlawful age discrimination.  The EAT confirmed that the enhanced redundancy payment for workers over the age of 35 was objectively justified by a social policy objective of producing “a proportionate financial cushion for workers until alternative employment is found” which reflected “the comparative difficulty of loss of employment suffered by the older workers (finding another job; family financial commitments)”.

The EAT also referred to the public interest test set out in Seldon v Clarkson Wright and Jakes (a partnership).  In Seldon the Supreme Court held that to justify direct age discrimination employers must show:

  • They have an aim;
  • That aim is potentially legitimate in that it is capable of being a 'public interest' aim as specified in the Equal Treatment Framework Directive (2000/78/EC).

The aim is also legitimate in the particular circumstances of the case.  It is important to note  that those 'public interest' aims should be distinguished from individual aims of a particular business, such as cost reduction or improving competitiveness; and

Odar v Baxter Deutschland GmbH C-152/11 – Lower payments for older employees

Baxter operated a redundancy policy whereby redundancy payments were calculated based on age, length of service and gross weekly pay.  For workers aged over 54, the policy reduced compensation payable with reference to the earliest date from which the worker would be entitled to a state pension.

Dr Odar was employed by Baxter for over 30 years and is severely disabled.  Under the German state pension scheme Dr Odar was entitled to an ordinary old age pension from age 65, and a pension for severely disabled people from age 60.

Dr Odar was made redundant with effect from 31 December 2009 and, in line with Baxter’s redundancy policy, received a lower redundancy payment because he was aged over 54.

The ECJ held that reducing compensation for workers aged over 54 by taking into account the earliest date from which they could receive a state pension was not unlawful age discrimination.  The difference in treatment was justified by the legitimate objective of “granting compensation for the future, protecting younger workers and facilitating their reintegration into employment, whilst taking account of the need to achieve a fair distribution of limited financial resources in a social plan.”

Essentially, the ECJ held that the redundancy policy had legitimate aims of enhancing protection “for workers for whom the transition to new employment is challenging due to their limited financial means” and “preventing compensation on termination from being claimed by persons who are not seeking new employment but will receive a replacement income in the form of an occupational old-age pension”.

However, just because it was justified under the age discrimination provisions did not mean the disability discrimination which Dr Odar faced was justified. In this case the ECJ went on to find that the redundancy policy gave rise to indirect disability discrimination because it adversely affected severely disabled workers.  This is because such workers were entitled to a state pension at a younger age, and so they received less redundancy compensation than non-disabled workers. This could not be objectively justified and it “disregarded the risks faced by severely disabled people, who generally face greater difficulties in finding new employment, as well as the fact that those risks tend to become exacerbated as they approach retirement age”.

Conclusion

Both cases show that employers who wishes to implement redundancy schemes which do not follow one of the exemptions permitted by the Equality Act 2010 will have to have well thought out reasons to justify particularly where a formula adopts an enhancement which reflects service, age or likely pension drawdown. Furthermore, the fact that an employer may be able to justify the scheme from an age discrimination point of view will not mean that the scheme is save from challenge on the grounds of another protected characteristic.