An age cut-off for redundancy payments can be justified if pension provision adequately cushions the impact of financial loss.

Facts

Under BAE’s enhanced redundancy scheme, redundant employees were entitled to a redundancy payment based on a complex calculation dependent on length of service and age.

Redundancy payments were calculated as follows:

• each of first the five years’ of service – two weeks’ pay;
• each of the next five years – three weeks’ pay;
• each subsequent year – four weeks’ pay

There were the following other elements:

• an extra two weeks’ pay for each year of service over the age of 40;
• the maximum redundancy payment was two years’ salary;
• payments reduced progressively from age 57 ceasing at 60;
• notice or payment in lieu of notice on redundancy was six months for under 60s and the statutory minimum for over 60s.

A scheme of this nature based on age and service raises a host of potential age discrimination issues.

In this case, Mr Loxley was made redundant at 61 on 31 March 2007 and claimed the scheme unlawfully discriminated against him on the grounds of age by excluding those over 60 from a payment and by reducing their notice entitlement to the statutory minimum.

This case, therefore, only concerns itself with the cut off at 60 and not the other potentially discriminatory features of the scheme which did not disadvantage Mr Loxley.

In order to justify this cut off, BAE had to demonstrate that it represents a proportionate means of achieving a legitimate aim.

The company’s aim was to ensure that the redundancy moneys were distributed in an equitable and fair manner. As redundancy payments are designed to cushion the impact of unemployment an entitlement to draw a pension would negate the need for a redundancy payment.

When the redundancy scheme was set up its compulsory retirement age was 60 and employees could retire on a full pension at that age. BAE’s problem here, however, was that its retirement and pension arrangements had changed over the years. In 1996 its compulsory retirement age was increased to 65. In 2006, the company decided that the age at which a full pension was paid would also increase to 65 albeit in increments over two years and only in respect of service after April 2006. As Mr Loxley was made redundancy only a year later the impact on his pension was minimal.

BAE had recognised the potential impact of these pension changes on its redundancy terms and had negotiated with the unions a tapering agreement which provided those over 57 with the alternative of a redundancy payment calculated in a different way.

The employment tribunal accepted that BAE’s aim was legitimate and also that the scheme’s discriminatory impact on Mr Loxley satisfied the proportionality test having particular regard to the negotiated agreement with the unions.

Mr Loxley appealed to the EAT.

EAT decision

Mr Justice Elias in the EAT had little difficulty in accepting the company’s aim in ensuring a fair distribution of the redundancy moneys. He was more troubled with the tribunal’s approach to the question of proportionality.

The EAT accepted that an agreement with the unions is relevant to proportionality but emphasised that the justification must still be subject to critical analysis to consider “the risk that the parties will have been influenced, consciously or unconsciously, by traditional assumptions relating to age.”

The EAT also accepted that entitlement to a pension cushioning the blow of redundancy could justify a reduced or nil redundancy payment but emphasised that this would not inevitably be the case and the justification “must depend upon the nature of both schemes.” This must be correct.

The case was, therefore, remitted to a fresh tribunal to reconsider the matter.

Implications

Age-related elements of enhanced redundancy schemes are, predictably, generating a number of tribunal complaints.  The impression from these first cases is that the EAT, at least, will allow a degree of leeway for employers in justifying their schemes.  The issues are inevitably complex, however, and this case illustrates that justification of the discriminatory aspects of a scheme will be scrutinised carefully on a case by case by tribunals.

The judgment is available here.

Loxley v BAE Systems Land Systems (Munitions & Ordnance) Ltd (EAT) 0156/08/RN