BAE Systems ran a contractual redundancy payment scheme calculated on the basis of age and length of service. Benefits under the scheme were only paid to those under the age of 60 at the date of redundancy. Tapering provisions applied between the ages of 57 and 60. Employees over the age of 60 received no enhanced payment under the scheme and were only entitled to statutory redundancy pay. The rationale for excluding those over 60 was linked to fact that they were entitled to take benefits under the company’s pension scheme at age 60 and allowing employees close to retirement to receive a full redundancy payment would have provided them with a windfall payment.
In 1996, the compulsory retirement and pension age was increased to 65, although employees could still take their pension from the age of 60 with an annual reduction. One effect of this was that it could not necessarily be said that employees denied enhanced redundancy payments after the age of 60 were justifiably being prevented from obtaining a windfall. For employees who continued to work until age 65, any redundancy payment would not necessarily exceed what they would receive if they remained in employment.
Mr Loxley volunteered for redundancy in November 2006. As he was 61 he received only statutory redundancy pay and notice pay. Had he been 57, he would have received two years’ contractual redundancy pay and six months’ pay in lieu of notice.
Loxley brought a tribunal claim alleging direct age discrimination. BAE Systems accepted that the scheme was directly discriminatory, but argued that the discrimination was justified. The tribunal agreed with this and, therefore, found that there had been no discrimination.
The Employment Appeal Tribunal (EAT) decided the tribunal had not properly considered the issue of justification. While it was potentially justifiable both to exclude from a redundancy scheme those who are entitled to immediate benefits from their pension fund and to use tapering provisions, the EAT said that the tribunal was not entitled to make a finding on this as it had failed to analyse the financial information available to it. It therefore remitted the case to a new tribunal to be heard again.
In this case, as it has done previously, the EAT accepted that a redundancy scheme, which at face value discriminates on grounds of age, may nonetheless be justified as pursuing a legitimate aim. For example, such a scheme might aim to encourage and reward loyalty or to provide a more substantial financial cushion for older workers who may find it harder to find alternative employment. However, the decision also provides a useful reminder that pursuing a legitimate aim is not, of itself, sufficient to establish a justification defence. Proportionality is also key.
Employers with contractual redundancy schemes should review their schemes and, if they are discriminatory, satisfy themselves that they are justified. Any scheme that cannot be justified should be replaced with a scheme mirroring the statutory redundancy scheme (details on the Department for Business Enterprise and Regulatory Reform website – www.berr.gov.uk), which will then be exempt from the provisions of the age regulations.
Alan Chalmers, partner, DLA Piper