How far can cost justify discrimination?

The Court of Appeal has recently given a decision which provides some guidance on how far an employer can consider the issue of costs in carrying out a decsision that may otherwise amount to unlawful discrimination.

The case in question, Woodcock v Cumbria Primary Care Trust, concerned the Chief Executive of an NHS Trust. His role disappeared due to redundancy following a re-organisation. Mr Woodcock failed to secure the new Chief Executive role, and was told that he was at risk of redundancy in September 2006. Rather than being given contractaul notice at that point he was given some ten months to find an alternative role, and received advice on his career. Just before this meeting the Trust realised that if they gave him his one year contractual notice he would still be employed at the date of his 50th birthday. This would entitle Mr Woodcock to take early retirement on enhanced terms. Those terms would result in an increase in the cost of the redundancy by at least £500,000. Consequently the Trust gave notice to Mr Woodcock on the 23rd May, ie before his 49th birthday, so his notice would expire before his 50th birthday. Mr Woodcock subsequently issued a claim of direct age discrimination against the Trust.

The Employment Tribunal that heard the case in the first instance noted that giving Mr Woodcock his notice just before his 49th birthday amounted to "less favourable treatment" on the grounds of his age, as a comparator of a different age would not have been treated the same way. It also noted that the case law demonstrated that the Trust would not be able to justify discrimination on the basis of costs alone. However, the Tribunal ruled that the reason for the action was the fact that Mr Woodcock's role had become redundant anway, and that consulting with him further before giving notice would have achieved nothing, as there was no new role available for Mr Woodcock.

In the appeal to the Employment Appeals Tribunal (EAT) the judge expressed some concern over the current case law position that costs alone cannot justify discrimination, and this may result in employers scrambling to find, create, the other additional factor that would be required to justify the discrimination. The EAT upheld the finding that the dismissal was not based solely on cost, but alos on the need to dismiss a redundant employee and to prevent Mr Woodcock from benefitting from a financial windfall.

In the Court of Appeal the judge noted that almostr every decision taken by an employer is going to have regard to costs. The court observed that the propoer question is whether the treatment was a "proportionate means of achieving a legitimate aim." It ruled that dismissing a redundant employee was a legitimate aim, and that it was also legitimate for the employer to carry this out in a way that saved the Trust additional costs.

The Court of Appeal has upheld the standard approach that ther has to be something in addition to "costs" to justify discrimination in a case like this. The important issue for employers is to consider if the decision to dismiss is "proportionate".It is noticeable here that the Trust had been very generous already to Mr Woodcock in giving him such a long time to find alternative work before giving him contractual notice of termination, and that the pension enhancment would not have been an issue had they given notice at the first opportunity on concluding that his role had become redundant. The COurt of Appeal concluded that the discriminatory effect of the decision to dismiss was outweighed by the needs of the Trust, particularly as the Employment Tribunal had noted that nothing was to be gained with further consultation.

Employers should note that now the default retirement age has been abolished there could be an increase in cases like this one. Employers in such cases will need to be careful about how to defend such dscimination claims that may arise. The employer will need to find that additional factor above the "costs" factor in order to be able to defeat any such claim of discrimination.

At Hallett Employment Law Services we can help you in this situation. If you need any such help please do not hesitate to contact us.