Employment Flash - 9th July 2010

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Age discrimination in redundancy payment arrangements...

Kraft Foods UK Ltd v Hastie [2010] UKEAT 0024 10 ZT

K's redundancy scheme provided for employees to receive three and a half weeks' pay for each year of service. The scheme contained a cap that the maximum amount payable should not exceed the amount the employee would have earned if he had remained in employment to retirement age. H was earning £649.60 p.w. and had been employed for nearly 40 years. H's prima facie entitlement was to £90,100.98. H was two and a quarter years away from retirement and could not have earned that much before retirement, therefore the cap applied so as to reduce the sum by £13,600 to £76,560.

It was accepted that the cap constituted a PCP which disproportionately applied to employees in the 2-3 years preceding retirement and would be unlawful discrimination unless it was shown to be justified. The key ingredient to K's defence was that the cap was necessary to prevent employees from receiving a windfall. The primary object of the scheme was to compensate for loss of earnings; at 65 they would have been required to retire or at least would lose the legal right to continue in employment. If you are providing a scheme to comepnsate employees for loss of earnings it must be legitimate to prevent it paying out more than the amount of those earnings.

The EAT in determining that the cap was a proportionate means of achieving a legitimate aim (the ET had not thought so) was able to draw support from the obiter remarks of Elias P in Loxley v BAE Systems etc Ltd [2008] ICR 1348. In Loxley contractual redundancy pay was also calculated by reference to length of service but the scheme incorporated a tapering provision for those who had reached the age of 57 such that those over 60 received no enhanced payment under the scheme. After the scheme had been brought in the retirement age was changed to 65 but the scheme was not revised. BAE could not rely on the windfall argument so relied on an argument relating to receipt of pension instead; as that argument had not been properly considered by the ET the case was remitted. Elias P addressed the windfall argument that had been put: "...if the position still were that retirement automatically took place at the age of 60 then an employer would in our view manifestly be justified in having a rule which prevented the employee being better off as a consequence of receiving redundancy pay than he would have been if working until retirement age."

The EAT rejected the argument that because a redundant employee gets the same amount of money even if they walk into another job the next day then the payment calculated against length of service rather than anticipated loss of earnings did not have compensation as the purpose. It was an anomalous way of calculating comepensation, but it was long standing industrial practice and avoided the impossibility of knowing whether and when an employee will obtain further employment. The statutory scheme also looks to length of employment (s.162 ERA).

The EAT also rejected an argument based on the removal of the tapering provisions from section 162 by Schedule 8 of the Employment Equality (Age) Regulations 2006, SI 2006/1031. The Secretary of State's intentions in removing the provisions were unknown, and even he believed the tapering element to have been unjustifiable it did not follow that he was correct or that his conclusion could be applied to the present circumstances.

It was immaterial that H may have been allowed to work for K beyond 65, which K did normally permit, unless he had a legal right to work beyond that age which it was not suggested that he did.