Employment: Beware age discriminatory redundancy schemes

Enhanced redundancy schemes typically apply a formula based on an employee's age and length of service.  This raises age discrimination issues.  UK age discrimination law has a special exemption for enhanced redundancy schemes that very closely mirror the statutory redundancy scheme, but this exemption is narrowly drawn and so does not often apply.  Employers therefore have to objectively justify the ageist elements in their schemes.  To do this, they must show that the discriminatory treatment is a proportionate means of achieving a legitimate aim.  This is not an easy thing to do.

These are the issues highlighted in two new Employment Appeal Tribunal (EAT) cases, MacCulloch v Imperial Chemical Industries PLC and Loxley v BAE Systems Land Systems.  The EAT held that the employers in both cases had good legitimate aims underpinning the structuring of their enhanced redundancy schemes.  These included encouraging and rewarding loyalty, giving higher payments to older workers to reflect the greater difficulty they have in finding new jobs, and having tapering arrangements which reduced payments for older workers when they became entitled to pension benefits instead, to ensure that such workers did not receive a windfall.  However, this is only half the story, as the employment tribunals had glossed over the issue of whether the enhanced arrangements were a proportionate means of achieving these legitimate aims.  As a result, the cases have been sent back to the tribunals for consideration of this point.

Whilst the EAT's guidance on legitimate aims is very helpful, employers should not assume that it is easy to objectively justify enhanced redundancy schemes which have ageist elements.  In the worst case scenario, an employer who fails to do this may be forced to level up redundancy payments to the maximum payout.  Employers may therefore wish to review their existing arrangements and consider whether any ageist elements are objectively justified.

For more information, please contact Nicole Hallegua at nicole.hallegua@blplaw.com.