The Court of Appeal has held that an employer’s need to reduce staff costs in order to balance its books during a public sector pay freeze was a legitimate aim capable of justifying indirect age discrimination.
The facts
Indirect discrimination in employment occurs where an employer applies a provision, criterion or practice (often known as a “PCP”) to someone who has a protected characteristic which puts other people with the same characteristic at a disadvantage as compared with others who do not have that protected characteristic. However, applying the PCP will be justified, and therefore not discriminatory, if the employer can show that it is a proportionate means of achieving a legitimate aim. Case law has established a rule that discrimination cannot be justified where the reason for the application of the PCP is solely in order to save costs. This is sometimes known as the “costs plus” rule.
Mr Heskett was employed in the public sector as a probation officer. In 2010, the Government imposed restrictions on pay increases across the public sector. Because of these restrictions, Mr Heskett’s employer introduced a new pay progression policy under which he would progress much more slowly up the pay scale than he would have done under the previous policy. Under the new policy, older employees, who were already at or near the top, would earn significantly more salary and accrue greater pension benefits.
Mr Heskett claimed that this was indirect age discrimination. He argued that the pay policy put employees aged less than 50 (including him) at a significant disadvantage compared to those who were over 50.
The tribunal held that the new policy was, on the face of it, indirectly discriminatory, but that it was a proportionate means of achieving a legitimate aim, and therefore that its application was justified. The policy had not been changed to simply cut pay, but to enable the employer to “live within its means”. The new policy was held to be a temporary measure, and the employer was giving active consideration to changing it to reduce the age-discriminatory effect. While the discriminatory effect could not be justified in the long term, it was, as a short term measure, a proportionate response to the restrictions imposed by the Government
Mr Heskett appealed to the EAT, which dismissed his appeal. He then appealed to the Court of Appeal. In the Court of Appeal, he argued that his employer was relying on costs alone to justify the discrimination, and also that there was no evidence that the imposition of the new policy was a temporary measure.
The Court of Appeal confirmed that the saving or avoiding of costs cannot, without more, amount to a legitimate aim. It held that the essential question is whether the employer’s aim could fairly be described as being no more than a wish to save costs. If this was a fair description, the defence of justification cannot succeed. However, if this was not a fair description, it would be necessary to look at the employer’s aim as a whole, and decide whether the aim is legitimate.
The Court of Appeal found that the policy in this case was justified by drawing the distinction between having “the absence of means” and relying solely on costs. The employer had been obliged to cut staffing costs to balance the books, not solely to avoid or save costs. Because of this distinction, the policy could potentially be a legitimate aim, though there was still a need to show that the policy was a proportionate means of achieving that aim. The temporary nature of the policy was relevant to proportionality.
What does this mean for employers?
It is helpful for employers to know that they can, potentially, justify an act that would otherwise be indirectly discriminatory if they can show that their aim is to balance the books, or to “live within their means”. The distinction between imposing a PCP purely to save costs and doing so in order to balance the books may, as the court commented, be “subtle”, but employers may be able to make the distinction. It will be important, however, for employers to consider if there is a way to balance the books that is not discriminatory, or has less of a discriminatory impact, including whether the books can be balanced by imposing a short term measure.
