Case of the week: changes to pension scheme survive age discrimination claim: Bloxham v Freshfields Bruckhaus Deringer

Bloxham v Freshfields Bruckhaus Deringer

Freshfields did not unlawfully discriminate against a partner on grounds of age after it changed its pension scheme rules.

Background Freshfields, an international law firm, paid partners’ pensions out of the firm’s annual profits – the same “pie” from which active partners received their share of profits. Confidence in the arrangement fell over the years by a growing perception of intergenerational unfairness. Younger partners saw a greater proportion of profits paying for retired partners’ pensions. At the same time, the value of their own pensions was being eroded because of the expansion of the firm – as a result of which a cap in the pension scheme was to be triggered in the coming years.

After much consultation, Freshfields replaced the scheme with a less generous arrangement, which came into force in May 2006. Under transitional arrangements, partners over 50 could retire under the old scheme provided they did so before 31 October 2006. However, under the old scheme, partners retiring before 55 received a reduced pension the discount for retiring at 54 was 20%.

Mr Bloxham had planned to retire at 55 in March 2007, but as a result of these changes he retired on 31 October 2006 at age 54 to retain benefits under the original scheme. His pension was reduced by 20%. He argued that this amounted to direct age discrimination.

Decision The tribunal agreed that Freshfields had discriminated against Bloxham on the grounds of age in applying a 20% reduction to his pension as this constituted less favourable treatment compared to partners aged 55 or over.

However, the tribunal said that Freshfields had objectively justified the discrimination. The attempt to provide a more financially sustainable pension scheme that reduced the intergenerational unfairness on younger partners was a legitimate aim. The reduction of Bloxham’s pension by 20% was also legitimate to have paid him a full pension would have been perverse when the reforms were reducing benefits for all other partners.

In finding that the treatment was a proportionate means of achieving a legitimate aim, the tribunal took into account that the changes were necessary and involved balancing conflicting interest between different generations. Freshfields had consulted widely and took expert advice and no less discriminatory solution could be conceived.

Key implications While this decision is not binding, it provides useful guidance on objective justification in the context of age discrimination. Having said that, there were arguments open to Freshfields that may not be available to all employers defending age discrimination claims.

The legitimate aim here was the reduction of ‘intergenerational fairness’ and as such Freshfields was not relying on costs as its defence. Cost reasons alone cannot justify discrimination (Cross and others v British Airways plc), although employers seeking to change pension or other benefits schemes will often have no reason for doing so other than cost. It remains to be seen how tribunals will approach costs as a defence in future age discrimination cases.

Also, this case concerned partners agreeing arrangements between themselves and this was not a case of an employer making decisions that affect staff, where the bar may be higher.

The tribunal said that Freshfields “comfortably passed” the objective justification test. Other employers seeking to defend age discrimination should take note of the steps that Freshfields took to put themselves in a similarly advantageous position.

Judith Harris, professional support lawyer, Addleshaw Goddard

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