In this case, the Court of Appeal upheld an EAT decision dismissing a claim of indirect age discrimination concerning changes to a long term incentive plan (LTIP) made by the employer's parent company, finding that the parent company did not act as the employer's agent in relation to the LTIP.
Facts
Mr Fasano was a senior employee of Reckitt Benckiser Health (RBH), a wholly-owned subsidiary of the Reckitt Benckiser Group (the Group). He was eligible to participate in the Group's LTIP and was awarded shares and options under the 2017 LTIP whose vesting was dependent on the Group's performance between 2017 and 2019. In June 2019, Mr Fasano retired as a “good leaver”. Under the rules of the LTIP he remained entitled to a pro-rated amount of the award that would ordinarily vest at the end of 2019.
In 2019 it became clear that the performance conditions for vesting of the 2017 LTIP awards would not be met. On 18 September 2019, the Group changed the terms of the 2017 LTIP to provide that 50% of the awards would be paid regardless of performance, but awards would only be treated as vesting in May 2020, rather than December 2019. The aim of this change was to retain existing senior employees of the Group who would otherwise receive nothing in respect of the 2017 LTIP awards and would therefore have less incentive to remain in employment.
The Group also introduced a new condition that in order to receive the award an employee had to be employed as at 18 September 2019, when the rule change took effect, and remain employed until the new vesting date in May 2020. This meant Mr Fasano received nothing in respect of his 2017 LTIP award. He brought a claim in the employment tribunal (ET) against RBH and the Group (together, the Respondents) alleging that this amounted to indirect age discrimination under the Equality Act 2010 (EqA).
ET and EAT decisions
The ET dismissed Mr Fasano's claim. It accepted that the Group was acting as agent for RBH when providing the LTIP for RBH’s employees and by amending its terms. Accordingly, both companies could potentially be liable under the EqA if the amendment amounted to indirect discrimination. The provision, criterion or practice (PCP) of requiring LTIP participants to be employed on 18 September 2019 was indirectly discriminatory on grounds of age, but the ET concluded that it was justified as a proportionate means of achieving the legitimate aim of retaining staff.
The EAT upheld both Mr Fasano's appeal on justification, and the Respondents' cross-appeal on agency. It concluded that while making changes to the LTIP was a means of achieving the legitimate aim of retaining staff, the PCP (i.e. the requirement that LTIP participants had to be employed on 18 September) was not itself a means of achieving that aim. This was because those who were excluded had already left employment and so could not be retained. The PCP therefore was not justified.
However, neither Respondent was liable to Mr Fasano because the Group was not his employer and was not acting as RBH's agent, while RBH, the employer, was not discriminating, nor was it authorising discrimination by an agent.
Mr Fasano appealed on the issue of agency, and the Respondents cross-appealed on justification.
Court of Appeal decision
The Court of Appeal dismissed Mr Fasano's appeal and allowed the Respondents' cross-appeal.
The Court considered that the Group was not acting as RBH's agent in relation to the LTIP for the following reasons:
- The Group's authority to make and amend the LTIP derived from rules adopted by its shareholders and directors. It did not need RBH's assent to make those rules, and RBH had no control over its actions.
- There was no evidence of the Group having assented to act on behalf of RBH in creating the LTIP rules.
- RBH and the Group are separate legal entities. The existence of a corporate structure comprising separate legal entities tends to point against an agency relationship.
- The Group created the LTIP scheme, and RBH agreed with certain of its employees that they would benefit from it. However, the fact that a parent company adopts a scheme which may benefit employees of a subsidiary does not, without more, make the parent company the agent of the subsidiary.
- Mr Fasano was entitled under his employment contract with RBH to participate in the LTIP, and decisions of the Group in operating the LTIP may thus have had an effect on the legal relationship between him and RBH. But that, in itself, did not make the Group the agent of RBH.
On justification, the Court held that the EAT had been wrong to conclude that the PCP was not a means of achieving the legitimate aim of staff retention. LTIP participants who were in employment on 18 September 2019 would (save for those who departed as good leavers after that date) also have to remain employed on the new vesting date in May 2020, as that was the date when the awards would be made. Notwithstanding the good leaver provisions, the PCP as a whole was concerned with the retention of staff, and the ET had been entitled to find that it was a proportionate means of achieving that aim.
What does this mean for employers?
Both the EAT and the Court of Appeal agreed that the parent company in this case did not act as agent for its subsidiary in relation to the LTIP. Here, the PCP was found to be justified in any event. However, it is common for share schemes to be operated by a parent company on behalf of its subsidiaries and the Court's conclusion on agency may lead to an unpalatable result, whereby there is no remedy for an employee despite there being discrimination in the parent company's operation of the scheme.
That said, the alleged discrimination in this case was limited to acts that took place after the claimant's employment had terminated. The Court of Appeal noted that a different result might follow if an employer applied discriminatory rules made by another entity (whether a parent company or some other legal entity) to its employees during their employment. As this issue did not arise in the case, the Court's comments are not binding, but they do leave the door open to arguments on the point in the future.
