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Employment Law

Legal guidance - compliance - software

22 MAR 2012

Can cost justify age discrimination?

By Akhlaq Choudhury

The Court of Appeal (Rimer LJ, Arden LJ and Ryder J) today handed down its judgment in Woodcock v Cumbria Primary Care Trust [2012] EWCA Civ 330, a case dealing with the issue of when the consideration of costs or economic factors may justify an act of age discrimination. The judgment does not represent any radical development or departure from orthodoxy, and the Court of Appeal accepted the established guidance that an employer cannot justify discriminatory treatment solely because of the cost involved in taking steps to avoid that treatment. However, the Court of Appeal does confirm that just because the saving of costs forms part of the reason for a particular act does not mean that that act cannot be justified.

Mr Woodcock was the Chief Executive of the Trust. He was given 12 months' notice of dismissal on the grounds of redundancy just days before his 49th birthday. There was no formal period of consultation before notice was given. The timing of the notice was key: Had it come after his 49th birthday, Mr Woodcock would still have been employed by the Trust as he turned 50, at which point he would have become entitled to take early retirement on enhanced terms and that would have cost the Trust an additional £500,000. The Employment Tribunal found that a comparator not approaching his 49th birthday would have been consulted first before being given notice and that the timing of Mr Woodcock's notice was in order to avoid the additional cost of the enhanced retirement benefits. Although that amounted to a discriminatory act, the Tribunal found that it was in pursuit of a legitimate aim which was to avoid conferring an unnecessary windfall on Mr Woodcock in circumstances where he was clearly redundant and there was no alternative position that would have been acceptable to him.

The EAT (Underhill J presiding), whilst expressing some doubt as to correctness of the orthodox interpretation of Cross v British Airways plc [2005] IRLR 423 - that costs alone cannot be a legitimate aim for the justification of discrimination - decided that it did not need to depart from that established position since the Trust in the present case had not relied solely upon costs as the only justification for its actions. The EAT found that in the particular circumstances of Mr Woodcock's case, where his job had ceased to exist over a year earlier and where he could not have had any legitimate expectation that notice would not already have been served some time before it in fact was served, any further delay in serving notice would indeed have resulted in a windfall for him, and that "the prevention of that windfall, and the avoidance of the corresponding loss to the Trust, was a legitimate aim going beyond the mere wish to reduce costs."

The Court of Appeal accepted that the guidance of the Court of Justice in Hill v Stapleton v Revenue Commissioners [1999] ICR 48 is that an employer cannot justify discriminatory treatment ‘solely' because the elimination of such treatment would involve increased cost. However, the Court went on to say, "that guidance cannot mean more than that the saving or avoidance of costs will not, without more, amount to the achieving of a ‘legitimate aim'."  (para 66). The question therefore was whether the Trust's treatment of Mr Woodcock could be characterised as no more than treatment aimed at saving or avoiding costs; if it could be so characterised then it was not a means of achieving a legitimate aim and was incapable of justification. The Court of Appeal agreed with the Courts below that "on the unusual facts of this case", the dismissal notice was not served simply to avoid costs and that it was legitimate for the Trust, in considering the timing of the steps it needed to take to effect Mr Woodcock's dismissal, to take account of the additional costs that it would bear as a result of the windfall from which Mr Woodcock would benefit if notice were delayed (para 68). The Court of Appeal acknowledged that the timing of the notice had resulted in the discriminatory failure to consult. However, as to that it was held that:

"that consideration goes... only to the proportionality of the treatment adopted by the Trust. That required the striking of an objective balance between the discriminatory effect of the treatment of Mr Woodcock and the needs of the Trust." (para 70)

In other words, a costs-based discriminatory act is capable of being objectively justified. This is especially significant given that the Court also noted (as had Elias J in Redcar & Cleveland [2007] IRLR 91) that almost every decision taken by an employer is going to have regard to costs. (para 66). In Mr Woodcock's case, consultation would not have served any useful further purpose and that meant that it was not disproportionate to deprive him of that procedural step. On the other hand, the benefit to the Trust of ensuring that termination took effect before Mr Woodcock's 50th birthday was substantial and it would have been "irresponsible" not to have had such considerations in mind when acting as it did.

The judgment is potentially beneficial to employers seeking to run costs-based justification arguments in age discrimination complaints. It certainly cannot now be said that just because a decision is substantially driven by costs considerations, it cannot be justified. However, the outcome in this particular was (as the Court of Appeal was at pains to emphasise) based on its somewhat unusual facts, and there will still be heavy burden on employers seeking to win the proportionality argument where costs are relied upon as justification.

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