If you are one of the many employers currently looking at workforce cost savings, a recent decision of the Court of Appeal provides helpful guidance on balancing age discrimination against ‘balancing the books’.
In terms of discrimination in the workplace, cost saving alone cannot justify discriminatory treatment.
However cost plus ‘some other factor’ may justify age discrimination. And this is known as the ‘cost plus’ rule.
Cost often arises as an issue when considering potential age discrimination: wages are often an employer’s biggest overhead; and salary is often indirectly linked to age.
In the recent case of Heskett v Secretary of State for Justice, the Court of Appeal has upheld the ‘costs plus’ principle in the context of indirect age discrimination by an employer. The Court found that saving or avoiding costs will not, without more, amount to justification of age discrimination.
However, the case highlights the fine distinction between
Under the Equality Act 2010 (the Employment Equality (Age) Regulations (Northern Ireland) 2006, indirect discrimination occurs when a provision, criterion or practice is applied which
Since 2006, the Claimant, Mr Heskett, had been employed as a probation officer by the National Offender Management Service, an executive agency of the Ministry of Justice. Mr Heskett contended that a policy, introduced by the Treasury in light of the financial crisis, to limit pay increases, discriminated against younger employees.
Under the new policy, a probation officer could only move up one ‘pay point’ per year, whereas previously it had been three; this meant it would take Mr Heskett 23 years to move into the top pay band, whereas originally it would only have taken him 7-8 years.
Mr Heskett brought a claim in the Employment Tribunal for indirect age discrimination. The Tribunal found that while the policy did put those aged 50 and under at a significant disadvantage, it was justified as a “proportionate means of achieving a legitimate aim” (see Background above).
The ‘legitimate aim’ was to cut costs and the employer had changed its policy to ”live within its means” – while the pay inequalities could not be justified in the long term, the policy was a proportionate short term response.
Mr Heskett appealed the tribunal’s decision, but it was upheld by the Employment Appeal Tribunal. He then appealed to the Court of Appeal, arguing that the justification was just an argument based on costs and the tribunal had been wrong to consider “absence of means” as anything other than reliance on costs.
The Court of Appeal dismissed the appeal on all grounds.
It was agreed that “the saving or avoidance of costs will not, without more, amount to the achieving of a legitimate aim”, embedding the ‘costs plus’ rule in case law.
However, the Court held that an employer’s need to reduce its expenditure, and specifically its staff costs, to balance its books, could constitute a legitimate aim.So, an employer is entitled to treat constraints on staffing costs as a legitimate aim, but must also show that the cost cutting measures were a proportionate means of achieving that aim – considering the discriminatory effect on the group in question and whether the aim could be addressed in an alternative way.
The employer’s future intention was also relevant; and the pay constraints in this case were intended to be temporary.
At a time when many employers are facing severe financial pressures and looking to reduce costs, this decision provides some reassurance.
The ‘costs-plus’ approach to justifying age discrimination has been endorsed, so employers must continue with the, sometimes somewhat artificial, search for the ‘plus’ factor when looking at cost savings which impact on certain age groups.
However, it is now established that an employer’s need to operate within a budget or balance the books may justify any age discriminatory effect of cost saving measures. Even keeping to a self-imposed budget appears to be a legitimate aim.
Note that this case may have been decided differently if there had been
So, while the distinction between a ‘simple’ money saving exercise and a ‘costs plus’ budgeting exercise may sometimes be subtle – it’s an important one to draw.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at December 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions
TLT appointed to Vodafone's global legal panelRead more
TLT appointed to sports and arts legal services panelRead more
TLT partner appointed to Sport Resolutions panelRead more
Protected characteristics - Court of Appeal rules on dismissal over...Read more
Sleeping on the job - National Minimum Wage and overnight shiftsRead more
TLT supports Ecotricity with Electric Highway partnershipRead more
TUPE and re-tendering/outsourcing service contractsRead more
When does employee conduct outside the workplace become an employer's...Read more
Worker status and the gig economyRead more
Helping you navigate your business through the risks and opportunities that Brexit will bring.Read more
The way people shop is constantly evolving, from the growth of online and the changing use of stores...Read more
The widespread disruption and closure of businesses caused by the Covid-19 pandemic and the subsequent national and local lockdowns has brought into sharp focus the question of available insurance cover for losses under...Read more
Watch our video series for information on the legal issues that are affecting the real estate sector. Each...Read more
The pandemic has had a deep and long-lasting effect on the leisure, food & drink sector, forcing operators to embrace new ways of attracting and servicing customers.Read more
The pandemic has forced the majority of the workforce into a world of remote working. As a result, our cities are evolving.Read more
Our countdown to Brexit and beyond podcast series looks at the impact for businesses on both sides of the pond of any free trade agreement between the UK and Europe and the UK and the US. ThisRead more
There's a growing demand for retailers to do more to attract the Purple Pound – the collective spending power of disabled shoppers, estimated to be worth around £274bn. We look at the opportunities, the legal issues and...Read more
Green finance is gaining speed, driven by global climate change pressures and the recognition of the vital role which sustainability plays in a resilient financial services sector.Read more
We provide strategic and business as usual advice covering all aspects of employment law, as well as dealing with disputes, mediations, complex tribunal claims.Read more
We work alongside our clients to ensure compliance with the legal framework, sharing our experiences and combined knowledge to ensure they avoid the pitfalls.Read more
Our team has experience in all areas of restructuring, whether involving redundancies and reduction in staffing levels, or a change in benefits and terms and conditions.Read more