Saving costs and discrimination claims- how far can cost-saving justify indirect discrimination?

30th November 2020 The Equality Act 2010 defines different forms of unlawful discrimination. One such form of discrimination is known as “indirect” discrimination. This type of discrimination involves an employer operating a provision, criterion, or practice, which has a discriminatory impact on the alleged victim arising from that person having a particular “protected” characteristic -such as being male, female, or of a particular religion, or age. Typically, cases have been brought of “indirect” discrimination where employers have required a new mother to return to a full-time role after maternity leave, and when employers have altered working patterns that have been harder for certain employees to accommodate because of their domestic caring requirements -such as a mother caring for children or an elderly parent.

Under the terms of the Equality Act 2010, an employer can defend “indirect” discrimination, where the employer can demonstrate that it a legitimate (non-discriminatory) aim and acted proportionately.

In the current circumstances many businesses are having to make very difficult decisions about the future of their business, and the future employment needs, and taking steps to reduce the costs to their business so that they can do their best to survive the lockdown and impact of the lockdown. Naturally, redundancies result from the needs of the business to save costs (ie staffing costs) in order for the business to survive and adapt.

The issue that then raises its head is the question of how far can costs saving justify something that might otherwise amount to indirect discrimination, including indirect discrimination on grounds on age. Over recent years, the case law has developed in such a way as has been largely interpreted to mean that indirect discrimination cannot be justified by costs alone. There have been a number of cases in the appeal courts that have examined aspects of the ability of the employer to rely on the defence and raise costs issues in connection with the defence.  In particular, the case of Woodcock v Cumbria Primary Care Trust (from 2012) has been considered and interpreted as indicating that the employer would not be able to rely on costs alone as sufficient to be a legitimate and proportionate means of defending an indirect discrimination claim. This appears to be very challenging for businesses that are now facing the need to make significant costs savings in order to survive, including reducing their staffing costs by making redundancies.

A number of cases since Woodcock a number of cases have resulted in an approach to the defence as requiring “costs plus”, ie the need to have a factor in addition to pure costs saving in order to establish the statutory defence to indirect discrimination. The consequence has been that a level of uncertainty has surrounded the question of how far redundancies, driven by the need to make cost savings, can be argued as coming within the statutory defence. The Court of Appeal has recently given a ruling that may be helpful to employers needing to make redundancies and then facing allegations of indirect discrimination in connection with the redundancy process and decision.
In the case of Heskett v Secretary of State for Justice the Court of Appeal has given a ruling that indicates that arguments of cost savings will be sufficient to meet the statutory defence if coupled with something else such as the need to reduce expenditure and balance the books. In other words, the Court of Appeal was saying that costs alone will not amount to a good defence, it must be linked to a further reason.  

The case involved a probation officer. In order to meet the cap on the increase in public sector pay, the Ministry of Justice altered its pay structures. The changes to the pay structures had the impact that progression up through the pay scales would take longer than they had done previously. As a consequence of the changes, the Claimant would, in the longer-term, earn less than his longer serving colleagues. Typically, those longer-serving colleagues were older than the Claimant, and hence the Claimant brought a claim of indirect age discrimination against the employer. The argument by the Claimant was that, following the case of Woodcock, the costs savings alone could not, as a matter of law, constitute a valid legitimate aim, and hence it was argued that the discriminatory impact of the new pay structure could not be objectively justified.    

On considering the existing case law, the Court of Appeal concluded that there cannot be a legitimate aim justifying discrimination if the only reason for the employer’s actions is to save costs. This indicates that an employer cannot discriminate solely because it is cheaper to do so than not to do so. The Court of Appeal ruled that:-
        
“It is better, in any case where the issue arises, to consider how the employer's aim can most fairly be characterised, looking at the total picture. It is only if the fair characterisation is indeed that the aim was solely to avoid increased costs that it has to be treated as illegitimate.”

The Court of Appeal considered that the phrase “costs plus” should be avoided when examining the issues in this sort of case. The Court when on to direct itself to the question of whether the “plus factor” could consist of the fact that the employer is subject to financial constraints which oblige it to reduce its costs. The Court went on to state that:-

“If it is permissible for an employer to rely, as a legitimate aim, on a real need to reduce or constrain staffing costs, it still has to show that the measures complained of represent a proportionate means of achieving that aim, having regard to their disparate impact on the group in question. It is in my view entirely appropriate that a proportionality exercise of that kind should be the focus of the justification enquiry. Such an exercise will enable the tribunal to examine carefully the nature and extent of the financial pressures on which the employer relies as well as the possibility that they could have been addressed in a way which did not have the discriminatory effect complained of.”

This case indicates that the Courts should accept that an employer facing the need to reduce its expenditure in order to balance the books, with job losses resulting from that, will be able to demonstrate a justification to potential indirect discrimination.

From the view of individual employees this ruling does suggest that it will be extremely difficult and rare for them to succeed with an argument that a particular action is based on costs alone. The Court seemed to acknowledge this, noting:-

“I recognise that it may sometimes be difficult for a tribunal to draw the line between a case where an employer simply wishes to reduce costs and cases where it is, in effect, compelled to do so.”

In a context of a pure re-organisation I would anticipate that an employer would argue that there are underlying needs for efficiencies behind the re-organisation that amount to the “plus factor.” In a more traditional redundancy situation where the business simply has to make savings in order to survive (as is the case for many businesses at present) the employer would obviously argue that the “plus factor” is the fact that it is compelled to do so in order to survive as a viable business. This ruling is clearly to be welcomed by struggling businesses, but it may well limit the ability of individuals to succeed with claims of indirect discrimination allegedly arising from redundancy procedures.
      
If you need any further advice on any matter raised in this article do not hesitate to contact us at Hallett Employment Law Services Ltd.