Age discrimination: New contract discriminatory or justified?
Published 17 March 2015
Age discrimination: requirement to enter into new employment contract was an indirectly discriminatory working arrangement, but in this case it was justified
Over time, a number of employees from different companies had had their employment transferred to the respondent employer. As a result, its employees had a variety of terms and conditions in relation to matters such as working hours (some on 37 to 40 hours a week, others on 35), annual leave (27 to 30 days compared with 25), entitlement to private health care, carers’ leave, and enhanced redundancy terms. The respondent was facing significant, continuing losses which had already been underwritten by its parent company by £10 million. It decided to address these losses by reducing staff costs (which represented 92 to 99% of percentage revenue on a monthly basis) by requiring employees to agree to a single set of new terms and conditions or be dismissed. The single set of terms required 37 working hours per week, gave annual leave of 25 days a year and there would no longer be any entitlement to private health insurance, carer days or enhanced redundancy payments. The change in terms put older employees at a particular disadvantage as employees within the 38 to 64 year age range were more likely to lose their existing contractual rights. The tribunal found that the requirement to enter a new contract was a provision, criterion or practice (“PCP”) but also held that the PCP was objectively justified and dismissed the claim. Both parties appealed to the EAT.
The EAT held that the employment tribunal was entitled to find that the requirement that, in order to remain employed, the employees had to agree to new terms and conditions or be dismissed was a PCP. The tribunal was also entitled to find that the PCP was objectively justified. The respondent had a legitimate aim, namely reducing staff costs to ensure its future viability and to have in place a market competitive, non-discriminatory set of terms and conditions. In considering the issue of objective justification, the tribunal had properly understood the task that it had to carry out and had carried out the task properly. It considered the effect of the changes upon the affected employees and balanced the needs of the respondent against those changes. It had regard to the alternatives proposed by the employees through consultation, but none of those alternatives met the legitimate aim – they would have merely delayed achieving it. Furthermore, the EAT noted that the respondent was entitled to ensure it broke even year on year and to allocate its resources to achieve that. The alternatives of voluntary redundancy did not meet the legitimate aim as the respondent did not wish to lose staff. Neither did it wish to delay bringing in the efficiencies: its concern was to reduce the unit cost per employee quickly. As there were no practicable alternatives to the changes, they were proportionate.
What this means for employers:
This case clarifies that a change in terms and conditions is capable of being a PCP if those changes mean that a group is disadvantaged. The EAT distinguished this case from previous case law where it had been held that changing a bonus scheme was not a PCP. In that case the changes affected the whole workforce: there was no point at which some employees were treated differently. In this case older employees were disadvantaged because they enjoyed different, more favourable terms, before the change was introduced. The result is that organisations whose employees are employed on a variety of terms and conditions will need to bear in mind the discriminatory effect of changing terms of employment, and have good reasons for it if they wish to objectively justify the changes.