Background

Under the Equality Act 2010, a person is indirectly discriminated against if a provision, criterion or practice (PCP) is applied to them which puts, or would put, that person and persons who share the same characteristic as that person, at a disadvantage compared to others. However, it will not be indirect discrimination if the application of the PCP is a proportionate means of achieving a legitimate aim.

In 1998, case law held that an employer could not justify a discriminatory PCP solely on the ground that to avoid the discrimination would be costly. This case was considered in 2005 by the Employment Appeal Tribunal (EAT), which decided that cost considerations may be taken into account, along with other factors. This garnered the label of the “cost-plus” approach.

Facts

The “cost-plus” approach was recently considered by the Court of Appeal in the case of Heskett v. Secretary of State for Justice. Mr Heskett was employed as a probation officer. A new pay progression policy was introduced. Under the new policy, Mr Heskett would progress one pay point per year, as opposed to three pay points under the old policy. Mr Heskett brought a claim for indirect age discrimination, arguing that the policy put those aged under 50 at a significant disadvantage to those aged over 50, as older employees at the top, or nearing the top, of the band would earn significantly more in salary and accrue greater pension benefits than those lower down the band.

A tribunal agreed with his employer’s objective justification for the policy, i.e. the need to cut costs and “live within its means”. It also took into account that the policy was temporary. The EAT upheld the tribunal’s decision on appeal.

The Court of Appeal dismissed Mr Heskett’s appeal that his employer was relying on costs alone to justify the discrimination, and there was no evidence that the policy was temporary. The Court of Appeal acknowledged it was bound by a previous ruling that asked it to decide if an employer’s aim in acting in the way that gave rise to the discriminatory impact could fairly be described as no more than a wish to save costs.

The Court of Appeal considered the distinction between applying a PCP because it would simply be more expensive otherwise, and applying a PCP because it would be unaffordable otherwise. The court held that an employer’s need to reduce its expenditure, and specifically its staff costs, in order to “balance its books” could constitute a legitimate aim. It then needed to consider whether the actions taken were a proportionate means of meeting that aim, or whether there was a less discriminatory way to achieve it.

In this case, the court acknowledged that the employer’s short-term means of responding to the problem was proportionate.

Takeaway points

So, whilst employers will still need to search for the “plus factor” to their costs argument for imposing certain measures, it is helpful to now know that the need to “balance the books” can be a legitimate aim. Since all organisations will find they are being driven by a need to “balance the books” at the very least, the Heskett case is helpful in setting this rather low bar to establishing a legitimate aim. However, it still remains for employers to satisfy themselves that there is no less discriminatory way of “balancing the books”, with a focus remaining on the proportionality limb.

About Verity Buckingham

Verity is experienced in all aspects of employment law and corporate immigration matters. She deals mostly with corporate clients advising on contentious and non-contentious employment matters. Verity's contentious practice includes defending claims in the Employment Tribunal and experience of Employment Appeal Tribunal litigation in relation to claims of unfair dismissal, discrimination, equal pay and whistleblowing.