08 December 2011 - Post by:Stephen Richards
Clients often question whether the costs that would result from changes made to their pension schemes to comply with age discrimination laws can be taken into account when determining whether the changes need to be made. How much weight can be given to costs to justify age discrimination? We should be finding out the answer to this soon, when the Woodcock case is decided. Recently the Chancellor revealed his plans to extend the country’s austerity programme and it is arguable that cost savings have rarely featured quite so prominently on the political agenda.
When it comes to discrimination laws, the general rule is that cost saving by itself has never been an adequate justification for discrimination. A question mark has been raised over this principle in the age discrimination case of Woodcock v Cumbria PCT.
Pension schemes benefit from a number of exemptions in legislation where they are allowed to apply rules and practices which are age discriminatory, for example, the minimum and maximum age for admission to a pension scheme. However, where there isn’t an exemption that can be relied on the discriminatory rule or practice will need to be ‘objectively justified’ to be lawful. This means that the act has to be a ‘proportionate means of achieving a legitimate aim’. So far case law has stopped short of allowing cost reasons by themselves to satisfy the grounds of a ‘legitimate aim’. Another factor is also needed and this has become known as the ‘cost plus’ approach.
However, in the Woodcock case the Employment Appeal Tribunal said that this approach resulted in “artificial game playing – find the other factor”. Mr Woodcock was chief executive of a primary care trust and was given notice of termination on the grounds of redundancy as part of an NHS restructuring shortly before he turned 49, without formal consultation. With a one year notice period in his contract of employment, if due process had been followed before giving notice then his termination would have been delayed beyond his 50th birthday and this would have triggered an enhanced pension (with significant costs to the Trust). Mr Woodcock had been made redundant on the grounds of his age (at least in part). The question was whether or not the Trust’s decision could be objectively justified to avoid a breach of discrimination legislation.
The EAT found in the favour of the Trust using a ‘cost plus’ legitimate aim. The ‘plus’ was to avoid Mr Woodcock receiving a windfall. This doesn’t seem to be much of a ‘plus’. As Andrew Short QC noted at November 2011’s Association of Pension Lawyers conference it isn’t much of a ‘plus’ to say “our decision was not solely based on saving us money – we also wanted to stop you from getting it!”
The EAT went further in suggesting an alternative approach to ‘cost plus’: “In many cases the discriminatory impact in question may be such that the employer must avoid or correct it, whatever the cost. But there may equally be cases where the impact is trivial and the cost of avoiding or correcting it enormous; and in such cases we cannot see why the principle of proportionality should not be applied in the ordinary way.”
Mr Woodcock appealed the EAT’s decision and his appeal was heard in the Court of Appeal on 7 December 2011. In my view it would take a big step to break away from established case law on this point. However, in tight times could it be a better approach to allow an act to be justified solely on the grounds of costs being disproportionate and the impact trivial? We are waiting to see what view the Court of Appeal will take.
Stephen Richards is an associate at Allen & Overy LLP.