A tribunal has ruled that a law firm did not unlawfully discriminate on age grounds when it reformed its partner pension scheme - even though the extent of partners’ losses depended on their age.

This is the first reported decision in which the test of justification under the Age Regulations has been considered in any detail. In essence, the tribunal found that the reforms were a ‘proportionate means of achieving a legitimate aim’ - namely, to overhaul a system which was both financially unsustainable and increasingly unfair between generations of partners.

Facts

Peter Bloxham was a senior partner of Freshfields.  He brought an age discrimination claim, arising out of the firm’s replacement of its pension provisions for partners with a less generous scheme.  His claim primarily concerned the timing of transitional arrangements relating to the reforms, which meant that he retired on only 80% of his full pension. 

The transitional provisions allowed a six -month window during which partners over the age of 50 could choose to retire under the old, more favourable pension provisions.  However, as Mr Bloxham was 54 at the time the transitional provisions were available to him, he had to take a 20% discount on his pension under the applicable rules because he was retiring before the age of 55.

Although Mr Bloxham accepted that the old pension scheme was in need of reform, he argued that the 20% discount was an age-based detriment which was disproportionate to the aim the firm was trying to achieve.  If he had been 55 at the time, he would have received a full pension.  

Freshfields argued that the reforms were necessary in order to replace an unfair and financially unsustainable scheme and the transitional arrangements were a part of balancing the interests of different generations of partners.  A key driver behind the reforms was to minimise the inter-generational unfairness that had been increasingly creeping into the pension system.  The ever-expanding number of retired partners meant that the younger, active partners were contributing more to others’ pensions while being likely to obtain less benefit when they retired themselves.

Decision

The tribunal accepted that the Mr Bloxham had received less favourable treatment on the grounds of age. This was because the 20% discount to his pension applied because he was aged 54 at the relevant time instead of 55.  However, it decided that this was justified and therefore not unlawful age discrimination. The justification test “was not merely met but was comfortably passed” by Freshfields.  The key factors in this conclusion were:

• it was widely acknowledged at the firm that the younger age groups were becoming ‘increasingly disadvantaged’ and the reforms were geared towards addressing this issue;
• preserving the old pension scheme rules under the transitional arrangements for those ‘most proximately affected’ was deemed acceptable;
• improving the position of those already protected by the transitional arrangements, as was Mr Bloxham, would have been both ‘unfair and perverse’ relative to the aim being pursued; and
• at no stage during the ‘lengthy and thorough’ consultation process, or even during the hearing, did Mr Bloxham put forward a less discriminatory alternative.

The implications

This was the first major tribunal decision under the Age Regulations. Although it involves an unusual pension system and so is quite specific to its facts, it provides a useful overview of the kinds of argument that might be successful in justifying differential treatment on age grounds. As justification in age discrimination claims is uniquely available as a defence both to direct and indirect discrimination, any guidance is helpful for employers.  

A key part of the tribunal’s reasoning was the fact that younger partners would have been disadvantaged even more if Mr Bloxham had been exempt from the early retirement discount.  Essentially, this was a balancing exercise where changes affecting one age group had knock-on effects for other age groups.  In addition, the tribunal expressly noted that no less discriminatory alternative had been put forward.  This clearly suggests that, in order to challenge an employer’s age discriminatory policy, a claimant will need to put forward a less discriminatory alternative to show that the employer’s approach was disproportionate.

Occasionally, different treatment on the basis of age is simply unavoidable.  Pension entitlements, which are invariably determined by age, provide a good example of this. 

The judgment is available here.

Bloxham v Freshfields Bruckhaus Deringer, IDS Brief 840, November 2007 (ET)