The EAT rules that ICI can potentially justify both age and service elements in their enhanced redundancy scheme.  It accepts the aims of:  paying more to older redundant workers because they face greater difficulty in the job market; encouraging older workers to leave thereby relieving recruitment ‘blockages’; and rewarding loyalty. They refer the case back to the employment tribunal to consider whether the discriminatory impact of the scheme is a proportionate means of achieving these aims.

The enhanced redundancy scheme

Enhanced redundancy schemes often use complex formulae to calculate the payment due to a redundant employee and ICI’s is one of the most complex and like many is based on age and length of service.

Redundancy pay was calculated by subjecting ‘qualifying pay’ to two multiples:  the first multiple was based on length of service up to a maximum of ten years; the second was based on age.

This second, age-based multiplier increased with each month up to age 50 at which point the multiplier was 175% of the initial sum. From age 57 the multiplier declined until age 61 and four months at which point the multiplier was 50%.

Facts

Ms MacCulloch was made redundant at age 36 after 7 years and 8 months service. Her redundancy pay was calculated at 55% of annual salary.

She complained to a tribunal that this discriminated against her on grounds of age in two respects:

• directly, in that older employees (at least up to 57) with the same service would have been subjected to a higher multiple; and
• indirectly, in that increasing the multiple with service would disadvantage younger employees and in particular those within her younger age group.

Direct discrimination

In order to defend the direct discrimination claim (based on the age-related multiple), ICI needed to identify its legitimate aim and then show that use of the multiplier was a proportionate means of achieving that aim.

The company put forward three aims:

• to give financial protection to older workers who are more vulnerable in the job market;
• to encourage older workers to leave creating vacancies for younger workers;
• to honour a contractual promise to the employees.

The employment tribunal accepted the first two of these aims (but not the third) and was satisfied that the scheme was a proportionate means of achieving these aim. The principal reason for this appeared to be evidence that scheme had been around for many years prior to the introduction of the age laws, was recognised as generous and had not been subject to complaint.

Ms MacCulloch appealed to the EAT

Mr Justice Elias agreed with the tribunal that the first two aims were legitimate. He accepted that the tribunal was entitled to draw on its own experiences to conclude that older workers find it harder than younger workers to find alternative employment and that the tribunal did not need to hear evidence on this.

This is disappointing.  Statistics do not substantiate the tribunal’s view (shared it seems by the EAT in suggesting that it is a view held by “all in the industrial relations’ field”).  In Galt v National Starch & Chemical Limited, albeit a first instance employment tribunal decision, the tribunal appeared unwilling to accept a similar assertion from the company in that case (another member of the ICI group co-incidentally).

It is equally disappointing that the tribunal and EAT also accepted the second aim: “older workers can be a block on recruitment and [making generous payments to older employees] encourages turnover and the prevention of blockage in the employment system if some older workers are tempted to leave”. The EAT justifies this by referring to the Directive which lists labour markets and employment policy objectives as being possible legitimate aims.

But isn’t this aim imbued with ageist prejudices? Why wouldn’t generous payments encouraging younger workers equally create opportunities? Why do older workers “block the system”? If anything, and even this would be contentious, the aim of unblocking vacancies would target either the longer service or more senior employees not the older.

In any event, the EAT was not satisfied that the tribunal had properly assessed the issue of proportionality. They indicated that “nowhere is there any express reference to the need to balance the reasonable needs of the business with the discriminatory effects on the claimant.”

Neither was the EAT happy that the generosity and general acceptance of the scheme was enough to justify its discriminatory impact.

Indirect discrimination

Dealing with the indirectly discriminatory nature of the service-related multiple, ICI advanced an additional aim, namely encouraging and rewarding loyalty. This was accepted by the tribunal and the EAT.

It was accepted that justification of the indirectly discriminatory aspects of the scheme stood or fell with the directly discriminatory aspects though of course there is every possibility that the proper balancing assessment of the discriminatory impact and employer’s business needs could give two different results for the age and service multiples

The EAT, correctly it is submitted, emphasised that the indirect claim would require analysis of whether the service-rule did disadvantage the claimant’s age group. All too often, it is assumed that service-related benefits will disadvantage younger employees  when it may often be far from easy for the claimant to demonstrate the requisite disparate impact in their own case.

One final point, the EAT had little time for the company’s argument that its enhanced scheme must be justified because of its proximity to the statutory scheme (schemes which exactly mirror the statutory scheme benefiting from an exception in the age regulations).

The judgment is available here.

MacCulloch -v- Imperial Chemical Industries plc (EAT) 0119/08/RN

This case was subsequently remitted to the ET and a link to that decision can be found here.