Following National Starch and Chemicals Limited’s (NSCL’s) decision to close its Warrington site, it entered into negotiations with the recognised trade union. NSCL proposed enhanced statutory redundancy payments as part of a package of measures connected with the redundancies. The enhanced package was three weeks’ gross pay for each year of service for affected employees aged under 40, and four weeks’ gross pay for each year they were aged over 40.
The claimants were made redundant at the end of 2006 and received enhanced redundancy payments according to the agreed formula. After they had been made redundant, the claimants brought age discrimination claims, alleging that they had been less favourably treated than older employees of NSCL who had been made redundant.
NSCL conceded that the claimants had been treated less favourably than other employees by reason of their age, however, the company argued that the treatment was objectively justified and, therefore, lawful.
The tribunal decided that NSCL’s calculation of its enhanced redundancy payments was unlawful. The enhanced scheme did not mirror statutory redundancy payment scheme and, as a result, NSCL could not rely on the specific exemption in the Age Regulations.
The tribunal then considered whether the formula used by NSCL to calculate enhanced redundancy payments could be objectively justified. It accepted that NSCL’s aim in implementing the enhanced redundancy pay formula was legitimate in that its purpose was to ensure no industrial unrest arose from the Warrington site closure. However, the tribunal said the way it implemented this aim had not been proportionate.
NCSL contended that older workers ought to receive more compensation as it was likely to be more difficult for them to find work. The tribunal considered that the enhanced scheme had a “broad correspondence” with the statutory scheme and that there had been extensive consultation with the relevant trade union, which had raised no objection. Yet it concluded that NCSL had not consciously considered the difficulties faced by older workers in obtaining work.
In respect of financial loss, the tribunal held that the loss suffered by the claimants was the difference between the enhanced redundancy payments they actually received, and those they would have received had they been calculated on the basis of a flat rate of three-and-a-half weeks’ pay per year of employment.
The case shows that an enhanced redundancy scheme can fall foul of the Employment Equality (Age) Regulations 2006 if it discriminates on the grounds of age. An age threshold will amount to direct discrimination, whereas a length of service requirement could amount to indirect discrimination. There is an exemption in the Age Regulations for schemes that mirror the statutory redundancy regime, but where the payments are more generous. However, many enhanced schemes do not attract this exemption. An employer maintaining a scheme that falls outside the exemption must be able to show that the scheme is a proportionate means of achieving a legitimate aim (ie, that it can be objectively justified) to avoid an age discrimination claim.
- Disadvantage suffered by older workers in the job market can justify age-based enhancements to a redundancy payment scheme. However, this defence will only be successful if the employer can show it has considered the purpose of the enhancement and that it meets the objective.
- While consultation with a trade union does not, of itself, give rise to a justification defence, the tribunal did consider that such consultation may be to the employer’s benefit in seeking to establish proportionality.
- Whether schemes that do not fall within the specific exemption in the Age Regulations are discriminatory on the grounds of age will depend on the facts in each case.
What you should do
- Consider the objective behind differential treatment based on age or length of service in an enhanced redundancy scheme and whether the scheme meets that objective.
- Evidence the thought process in contemporaneous documentation and where possible explain the scheme to employees and union representatives.