The Employment Appeal Tribunal in the case of MacCulloch v ICI has given guidance on justifying age discrimination. The case concerned a contractual redundancy payment scheme where payments were based on age and length of service.
Under the Employment Equality (Age) Regulations 2006, enhanced redundancy payment schemes over and above statutory redundancy pay (SRP) which are dependant on age and/or length of service can be lawful. Broadly, this will be permissible if employers 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 one) to the end result.
Any scheme which departs from the above exemption needs to be objectively "justified" where it is based on age or length of service (as this is potential direct and indirect age discrimination). This means the enhanced scheme must be in pursuance of a legitimate aim and the scheme must be a "proportionate" (ie, appropriate and necessary) means of achieving that aim.
Accordingly, employers operating any such enhanced scheme should review it to ensure that any age discriminatory impact could be justified if challenged. If it can't then consideration will need to be given to amending the scheme although where schemes may be contractual such a change would need to be carefully implemented and legal advice should be sought.
This case of MacCulloch v ICI demonstrates that where a redundancy payment scheme produces a significant difference in the levels of payments or benefits received by the employees, the employer will need to show that such differences can be justified by reference to the needs of their business.
The Respondent (ICI) operated a company redundancy scheme which increased payments according to length of service and age. The difference in these payments was "significant".
Ms MacCulloch (who had 7 years and 8 months' service) was made redundant and received 55% of her gross annual salary. She claimed this was both direct and indirect age discrimination because an employee aged 50 to 57 with 10 years' service would receive 175% of their salary.
Unlike other areas of discrimination, direct as well as indirect age discrimination can be justified by an employer.
The Employment Tribunal found that the scheme, although discriminatory on the grounds of age, could be justified by ICI because it was a popular and generous scheme which also encouraged older workers to leave the workforce thereby making space available for more junior employees.
The EAT however found that the Tribunal had not properly considered whether the means of achieving ICI's legitimate aims regarding its workforce were "proportionate" and instead have remitted the case back to the tribunal to consider this issue.
However, whilst the EAT did not decide whether the scheme was justified it did comment that:-
- The degree of difference in the payments made to the Claimant (MacCulloch) and her chosen comparator (aged 50 to 57) were relevant in deciding whether or not the difference in treatment could be justified by ICI.
- The Tribunal were wrong to focus on the redundancy payment scheme as a whole, instead of focussing on the individual and the effect of the discrimination on them.
- Direct discrimination may be harder for employers to justify than indirect discrimination.
- Rewarding loyalty and encouraging turnover and preventing "blockage" in the employment system are, in principle, capable of being legitimate reasons (aims) for paying older workers higher redundancy payments.