News

An Employment Tribunal has ruled that an employer could justify its contractual redundancy payments scheme where payments are calculated by reference to age and length of service. Accordingly the scheme was not discriminatory on the grounds of age.

Implications

The Employment Tribunal's decision provides useful guidance on how the Courts are likely to approach the potentially discriminatory effects of any scheme and what factors enable employers to justify such schemes. However the decision does not mean that all contractual redundancy payment schemes will be lawful under the Age Regulations. Therefore it is still advisable to consider reviewing such schemes to assess whether any discriminatory effects can be removed or if not, to ensure they can be justified.

Furthermore, as the decision is only at Employment Tribunal level, its ruling is not binding on other tribunals.

Details In the case of MacCulloch v Imperial Chemical Industries (ICI), Miss MacCulloch claimed that ICI's contractual redundancy payments scheme was directly and indirectly discriminatory on the grounds of age. Miss MacCulloch who was 37 and had 7½ years service received 55% of her salary under the scheme. She compared herself to a 50 year old with the scheme's maximum 10 years service, who would have received 175% of their salary under the scheme.

Under the Employment Equality (Age) Regulations 2006 enhanced contractual redundancy payments schemes over and above Statutory Redundancy Pay (SRP) can be lawful provided they follow the SRP calculation but then raise or remove the statutory cap on a week's pay and/or apply a multiplier (of more than 1) to the end result. Any scheme which departs from the above exemption needs to be objectively justified in order for it not to be either directly or indirectly discriminatory on the grounds of age.

It was accepted by ICI that their scheme did not fall within the statutory exemption and therefore they had to be able to objectively justify it.

The original Employment Tribunal found ICI could justify the scheme. However on appeal the Employment Appeal Tribunal ruled that the Employment Tribunal had not determined whether the scheme was a "proportionate" (i.e. reasonably necessary) means to achieve those legitimate aims.  

The Employment Appeal Tribunal remitted the case back to the Employment Tribunal to consider the question of proportionality.

The Employment Tribunal first confirmed that ICI's scheme did have a number of legitimate aims:-

  • To encourage and reward loyalty.
  • To protect older employees who are more vulnerable on losing employment.
  • To encourage the take up of voluntary redundancy.
  • To develop a contented workforce and therefore an effective and commercially viable business.

The Employment Tribunal then went on to hold that the use of age and length of service in ICI's scheme was proportionate. In particular the Employment Tribunal took into account the following factors:-

  • ICI had sought to change the scheme. However when they consulted with the workforce as a whole they did not agree to a "flatter" scheme because a number of people would be worse off. Therefore the abolition of the scheme would have lead to poor industrial relations. Whereas its retention was acceptable to the workforce as a whole and the trade unions, enabling ICI to have a commercially viable business by having a contented workforce.
  • None of the parties were able to identify a less discriminatory scheme which would have been acceptable to the workforce.
  • There is considerable judicial support for the view that older workers do not find work as easily as younger workers.
  • Limiting the maximum length of service under the scheme to 10 years was the correct level to reward loyalty, as workers no longer remained with one employer for all of their working lives.

Finally the Employment Tribunal held that Miss MacCulloch was not put at a substantial disadvantage by ICI's scheme because she had as much opportunity to obtain 10 years service as an older worker, even if she had not entered the labour market until a graduate at 23 years of age.