Legal opinion: Can cost justify age discrimination?

The recent Court of Appeal decision in Woodcock v Cumbria Primary Care Trust is the latest ruling on whether or not an employer can objectively justify acts of discrimination purely for reasons of cost. Chris Wellham, employment lawyer at Hogan Lovells, looks at what the case means for employers faced with potentially discriminatory situations.

Justifying age discrimination

The question of when discrimination can be justified on the ground of cost is particularly important in the sphere of age discrimination because, uniquely in UK discrimination law, it is possible to objectively justify direct, as well as indirect, age discrimination. If cost alone can objectively justify age discrimination, then it could bring about a shift in the treatment of employees for reasons related to their age. For example, if an employer selects an employee who is 25 years old for redundancy in preference to an older employee whom it would be more expensive to dismiss, the employer could escape a successful claim if it is able to justify its actions (ie, show that they are a proportionate means of achieving a legitimate aim) purely on the basis of cost.

“Cost plus approach”

Until last year, the European Court of Justice (ECJ) and the domestic courts had favoured a “cost plus” approach to objective justification, meaning that while cost alone could not be a “legitimate aim”, it, in conjunction with another factor, could be. This approach was thrown into doubt last year by the Employment Appeal Tribunal (EAT) in Woodcock, when it indicated that cost-alone justification should be allowed where the impact of the discrimination involved is minor and the cost of avoiding that discrimination is huge. A subsequent EAT decision, Cherfi v G4S Security Services Ltd, also indicated that it would allow justification purely on the ground of cost.

The Woodcock decision

In Woodcock, the Cumbria Primary Care Trust chose, when dismissing Mr Woodcock on the ground of redundancy, to bypass its normal consultation process and give Mr Woodcock notice such that his employment would terminate before he turned 50. It did this deliberately to deprive Mr Woodcock of an entitlement (that would otherwise have crystallised if he had been employed at age 50) to retire early on enhanced benefits in order to save itself significant additional costs. The employment tribunal found that the trust’s actions amounted to direct age discrimination, but were objectively justified. Mr Woodcock had no initial expectation of receiving the enhanced pension benefit, as the prospect of being dismissed after age 50 had only arisen following unforeseen delays to what was already a protracted redundancy process. The tribunal considered that the trust’s decision to bypass the consultation process to save costs and deprive Mr Woodcock of what would, in these circumstances, have been a windfall, was objectively justified.

The EAT upheld this decision and the case then went to the Court of Appeal. In its decision, the Court of Appeal appears to rebut the EAT’s assertion that cost alone could (in certain circumstances) be a legitimate aim and confirms the established view that cost alone is not enough. The Court of Appeal did, however, indicate that, providing there is more to the aim than just costs (that is, a “cost plus” approach), then objective justification is possible.

Taking cost into account

The reality of these cases is that it is very rare that cost alone is the only motivating factor and the employer will usually be able to identify a supporting factor in addition. In Woodcock, the Court of Appeal, which was sympathetic to the trust, found that the “plus” part of the legitimate aim was the requirement to dismiss an employee who was redundant. This seems a generous interpretation, as the actual discriminatory act was arguably bypassing the consultation process to deprive Mr Woodcock of the enhanced pension rather than the dismissal itself. It perhaps reflects the Court of Appeal’s view that the need to take a “cost plus” approach involves “some degree of artificiality”, given that almost every decision will take cost into account to some extent. However, the Court of Appeal clearly felt that the approach reflects the position endorsed by the ECJ and that it could not depart from it.

With this in mind, employers should not underestimate the impact of the relevant facts of each case, particularly where the law remains so grey on this issue. It is helpful that the Court of Appeal has recognised that the fact that costs have been taken into account does not prevent the employer from demonstrating that it has a legitimate aim. The more reasonable an employer’s actions are perceived to be, the greater the likelihood that a tribunal will find that the employer’s actions are proportionate, even if they are also designed to save money.

Chris Wellham, of Counsel, Hogan Lovells

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