Under a civil service voluntary exit scheme, employees aged 60 or over (and therefore eligible to draw a full pension under the pension scheme) had their severance compensation capped at six months' pay.  Employees under the age of 60 were not subject to the same cap.

The Tribunal hearing in Smith v Department of Business & Skills was to decide a preliminary point of whether there was a material difference between the claimants' circumstances and those of their comparators.  The Tribunal decided that they were in materially different circumstances, essentially because they were entitled to an unreduced pension, so they could not bring their age discrimination claim.

The EAT allowed the appeal.  They did not accept the argument that the key to the payment of increased compensation was not age, but liability to reduction in pension.  The claimants were entitled to ask "why am I getting less in compensation than my younger colleague?", and to assert that the answer is "because he is younger".  Any explanation that the claimants were getting a lesser sum in compensation because they were receiving more by way of pension was irrelevant at this stage.

The EAT drew heavily on the decision of the Court of Appeal last year inLockwood v DWP, a case about another voluntary redundancy scheme, but one which benefited older employees to a significant degree.  The Court in Lockwood found that the scheme was potentially age discriminatory but objectively justified, but its relevance to this case was in the Court's rejection of the Tribunal and EAT decisions that there were "material differences" between the age groups (the argument there being that younger employees had fewer financial and family obligations and could be expected to find other work more easily than older employees).

The Court of Appeal in Lockwood explained that the purpose of comparing people in the two age groups was to test whether the claimant had been discriminated against on a prohibited ground, in this case age.  The comparator must therefore be "materially similar" to the claimant in all ways except for the protected characteristic.  The premise that a 26 year older leaver did not need as much money as a 36 year old leaver, if correct, might justify the disparity of treatment, but that would be a separate issue.

In the same way, in Smith, the explanation that the claimants were entitled to less in compensation because they were getting more in their pensions was a red herring at this stage.  It would only be relevant to the issue of whether, despite being potentially discriminatory, the scheme was nevertheless objectively justified because the rules were a proportionate means of achieving a legitimate aim.  This is the issue which will now be examined in the Tribunal.

Both Lockwood and this case show that an employer's focus should often be on objective justification – in Lockwood, the employer was able to prove, by comprehensive statistical evidence, that its approach was proportionate and therefore not discriminatory.