What was the problem here?

The Age Regulations prohibit direct and indirect age discrimination unless it can be objectively justified as a means of achieving a legitimate aim.

In preparing for large-scale redundancies in the latter part of 2007, Rolls Royce was concerned that in 2003 it had entered into two collective agreements related to redundancy with Unite, covering various parts of its workforce. Both agreements' redundancy selection criteria contained a point scoring system under which employees were assessed against a range of categories. These included achievement of objective; self motivation (drive); expertise/knowledge; versatility/application of knowledge; and wider personal contribution to the business. On top of this, length of service would also be taken into account, with a point being scored for each year of service with Rolls Royce.

The length of service criterion hadn't been an issue back in 2003 (before the Age Regulations were in force). However, by the time Rolls Royce wanted to make use of the redundancy selection criteria set out in the agreements (2007 onwards), potential age discrimination was a very real worry.

Rolls Royce's concern was that this was indirect age discrimination because the length of service criterion might disproportionately impact negatively on younger employees: younger workers would be less likely to have the years of service required to score highly on the length of service criterion. They would therefore be at a disadvantage in a redundancy context.

Unite disagreed. It argued that the collective agreements had been agreed with the stated intention of allowing the company to "restructure flexibly and peaceably" in the context of a fair redundancy framework.

Unusually, Rolls Royce and Unite agreed to refer the issue to the High Court under Part 8 of the Civil Procedure Rules. The parties requested that the court provide a 'declaration' as to the lawfulness of using a length of service criterion. While Rolls Royce was on one side in the proceedings and Unite was on the other, it was accepted by all parties that this was not in any way as contentious a situation as it could have been. However, looming in the background was the knowledge that in order to prevent Rolls Royce pre-empting the court's decision and simply removing the provision outright, grievances had already been lodged on behalf of hundreds of Rolls Royce employees with a view to test cases being taken to an Employment Tribunal to determine the issue.

In November the High Court made a declaration that the use of length of service as part of a selection matrix did not necessarily fall foul of the Age Regulations. Rolls Royce then appealed to the Court of Appeal.

What was decided?

1. Use of length of service criterion in this context was objectively justifiable

The Court of Appeal agreed with Unite on the majority of its argued points, dismissing Rolls Royce's appeal by a majority. It found that the use of the redundancy selection criteria was a proportionate means of achieving a legitimate aim and was not therefore unlawful age discrimination.

Its reasoning on this point was based on the following:

  • First, was there a legitimate aim? The inclusion of the length of service criterion did, in the court's view, pursue a legitimate aim, namely, "the reward of loyalty and the overall desirability of achieving a stable workforce in the context of a fair process of redundancy selection."
  • Secondly, was using the length of service criterion a proportionate means of achieving this legitimate aim (which is necessary to establish the 'objective justification' test required by the Age Regulations). Although the High Court failed to adequately address this question, the Court of Appeal decided that, based on the evidence it had seen, the proportionality test had been met because;
    • the use of length of service criterion was only one of a number of factors used as part of the redundancy process and was therefore not a determining factor as to whether an employee would be made redundant;
    • Unite had produced unchallenged evidence that younger Rolls Royce employees understood why longer service members received the benefit of service credits in the scheme; and
    • these benefits had been negotiated on the basis that all employees were likely to benefit from them at some future point, which further encourages loyalty.

2. The use of length of service criterion also falls within Regulation 32 of the Age Regulations as a "benefit"

The Court went on to add that the criterion would, in any event, be excluded from being unlawful by being a "benefit" as provided for under Regulation 32 of the Age Regulations.

This is the more controversial comment made by the Court of Appeal. Regulation 32 is an exemption which allows employers to continue to provide benefits related to length of service without this being unlawful age discrimination, provided that where such benefits are provided for those with more than five years service, this reasonably appears to the employer to "fulfil a business need".

To date, employment lawyers have assumed that Regulation 32 would be confined to the more traditional forms of benefits, such as additional days' holiday for longer servers. The Court of Appeal has knocked that assumption.

The Court of Appeal was willing to take an extremely broad interpretation of "benefit", ruling that longer serving employees would derive the "advantage" of additional points to reflect their additional years' service under the redundancy selection criteria. This "advantage", the Court of Appeal held, was equivalent to a "benefit" in Regulation 32.

The Court also bulldozed over Rolls Royce's arguments that it could not establish that such a length of service criterion did fulfil a business case in this instance. Instead, the Court of Appeal quickly concluded that length of service might reasonably appear to an employer to encourage loyalty or reward experience,. In such a case, where the redundancy selection matrix has been agreed between the employer and the union, it was "probable... that such would be regarded as reasonably fulfilling a business need."

What does this mean for employers?

The decision is a double edged sword for employers.

On one hand, the Court of Appeal sanctioned the use of length of service as one of a number of factors used by Rolls Royce in determining who would be selected for redundancy. In this context, the age discrimination that resulted from this was a proportionate means of achieving a legitimate aim and so was not unlawful.

The court's further ruling that, in any event, the length of service criterion was a "benefit" for employees falling within the length of service exemption in the Age Regulations is also a distinct plus for employers who wish to reward longer serving employees as it potentially arms such employers with a double defence to this type of practice.

The "benefit" comments made by the court also imply that employers would not even have to objectively justify such a practice, instead only having to satisfy the more subjective "business need test" requirements found in Regulation 32.

However, the judgment is littered with caveats. The judges who delivered the decision were clearly reluctant to do so in the somewhat artificial context of a "declaration" application under the Civil Procedure Rules, without an actual "employment dispute" before them. The leading judge stressed that none of his conclusions should prevent any potential claimants from bringing employment tribunal claims that the redundancy process was unfair, or age discriminatory. Therefore this won't deter employees from bringing claims based on a length of service criterion used in redundancy matrices.

Worse still, some voices of dissent among the judges raised serious and very real issues about the timing of the issues before the court. In particular, could the judges genuinely determine whether the length of service criterion amounted to age discrimination "out of context"?

There is a strong argument that both objective justification and the business need test require an investigation into the state of mind of the employer at the time it uses the criterion of length of service, in order to establish what (if any) age discrimination arises and whether that can be justified. This, ultimately, is for an Employment Tribunal to determine once a practice, criterion or provision has been acted upon.

On the surface, this appears to be good news for employers with length of service elements within their redundancy selection criteria models. The message from the Court of Appeal is, as long as reliance is not placed on "blunt tools", such as 'last in first out' policies, length of service can be taken into account when determining redundancies as one of a number of factors, used in a proportionate manner.

However, as seems to be the case with many age discrimination cases at the moment, a secondary message is watch this space for future litigation on this area – we suspect the story isn't quite over yet! An Employment Tribunal hearing evidence in the context of an actual dispute may take a different view.