|[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]|
United Kingdom Employment Appeal Tribunal
You are here: BAILII >> Databases >> United Kingdom Employment Appeal Tribunal >> Kraft Foods UK Ltd v Hastie  UKEAT 0024_10_0607 (6 July 2010)
Cite as:  UKEAT 0024_10_0607,  ICR 1355
[New search] [Context] [View without highlighting] [Printable RTF version] [Buy ICLR report:  ICR 1355] [Help]
|At the Tribunal|
|On 30 April 2010|
THE HONOURABLE MR JUSTICE UNDERHILL (PRESIDENT)
MS K BILGAN
MR T STANWORTH
Transcript of Proceedings
|For the Appellant||MS YVETTE GENN
52 New Inn Hall Street
|For the Respondent||MS ANNA BURNE
Contractual redundancy scheme incorporating a cap preventing employees recovering more than they would have earned if they had remained in employment until retirement age Cap applied to Claimant, reducing the amount that he would otherwise have received by some £14,000 Tribunal holds that cap disproportionately applied to those approaching retiring age and was unjustifiable and accordingly that it constituted unlawful discrimination contrary to the Employment Equality (Age) Regulations 2006
Held, allowing appeal, that, since the purpose of the scheme was to compensate employees for the loss of the expectation of remaining in employment, to impose a cap preventing the "windfall" of an employee recovering more than he could have recovered had he stayed in employment until retirement necessarily constituted a proportionate means of achieving a legitimate aim - Dicta in Loxley v BAE Systems Land Systems (Munitions & Ordnance) Ltd  ICR 1348 applied Alternative grounds of appeal based on alleged bias rejected
THE HONOURABLE MR JUSTICE UNDERHILL (PRESIDENT)
(1) For the purposes of these Regulations, a person ('A') discriminates against another person ('B') if-
(a) on grounds of B's age, A treats B less favourably than he treats or would treat other persons, or
(b) A applies to B a provision, criterion or practice which he applies or would apply equally to persons not of the same age group as B, but-
(i) which puts or would put persons of the same age group as B at a particular disadvantage when compared with other persons, and
(ii) which puts B at that disadvantage,
and A cannot show the treatment or, as the case may be, provision, criterion or practice to be a proportionate means of achieving a legitimate aim.
(2) A comparison of B's case with that of another person under paragraph (1) must be such that the relevant circumstances in the one case are the same, or not materially different, in the other
The terms of the definition are thus substantially identical to the definitions of so-called "direct" and "indirect" discrimination familiar from other anti-discrimination legislation, with the important exception that in the case of direct, as well as indirect, discrimination, the employer is entitled to advance a defence that the treatment complained of is "a proportionate means of achieving a legitimate aim". In Pulham v London Borough of Barking and Dagenham  ICR 333 we said, at para. 15 (p. 343 F-G):
As Elias J observed in MacCulloch v Imperial Chemical Industries Ltd  ICR 1334 (see para 10 (2), at p 1338a-b), what the language of regulation 3 is intended to express is the classic proportionality test, which has been applied to resolve issues of justification in discrimination cases at least since the decision of the European Court of Justice in Bilka-Kaufhaus GmbH v Weber von Hartz (Case 170/84)  ICR 110. The exercise required of the tribunal on such a test is "to weigh the reasonable needs of the undertaking against the discriminatory effect of the employer's measure and to make its own assessment of whether the former outweigh the latter": see para 10 (4) in MacCulloch, at p 1338c-d.
We adopt the usual shorthand of describing that defence as one of "justification".
The Policy is a generous one which has been approved by the recognised trade union(s). It provides for a payment of 3.5 x 8 weeks' pay (which is not subject to the statutory maximum) for each year of service completed save that the amount of the redundancy payment is capped at the total amount of basic pay that the employee would have received between the date of redundancy and the date of his or her normal retirement age. This is to prevent employees receiving a windfall.
Para. 6 reads as follow:
In any event the Respondent maintains that the Policy is justified in that it is a proportionate means of achieving one or more legitimate aims. In particular it strikes a fair balance between the purpose of the Policy, the resulting benefit to employees and the cost to the Respondent whilst preventing employees from receiving a windfall.
(1) that the primary object of the Scheme was to compensate redundant employees for the loss of the earnings which they would have been entitled to receive from their job had they remained in employment; and
(2) that on achieving age 65 an employee would be required to retire - or in any event would lose the legal right to continue in employment.
On the basis of those premises, it would go beyond the object of the Scheme and thus be a "windfall" for an employee to receive a sum under it in excess of what he would have been entitled to receive had he continued to age 65. To take an extreme example by way of illustration, an employee on the same earnings as the Claimant, and with his length of service, who was made redundant at age 64 and 11 months would receive £90,000 by way of compensation for the loss of the chance to earn some £3,000 in the remaining month of his employment.
The aims of the Respondent's enhanced redundancy scheme are:
a) To compensate those opting for redundancy for loss of earnings and benefits and help them secure alternative employment.
b) To encourage volunteering from those who are approaching the end of their careers by offering a payment equivalent to their earnings up to the date of retirement. This has the benefit of encouraging older workers to leave, thus making available space for the development of more junior employees. It also helps minimise the need for compulsory redundancies.
c) To recognise and reward long-service and loyalty amongst its employees.
d) To recognised however the fact that older workers often find it more difficult to secure alternative employment, the scheme provides that payments increase in line with age and service and in all respects other than the cap, mirrors the statutory scheme.
e) To avoid an excessive windfall and reduce the cost of redundancy to the Company (already significantly inflated by allowing volunteering) a cap is in place to ensure individuals cannot earn more in redundancy then they could have earned up to Normal Retirement Age. It should be noted that employees approaching retirement are entitled to generous pension benefits under the non-contributory Final Salaries Pension Scheme which is open to all employees. There are no actuaries reductions applied from the age of 60. The Company makes significant financial contributions to the scheme on an annual basis currently equivalent to circa 20% of the total salary cost.
f) To allow the Company to effectively manage change in such a way that we minimise business disruption or industrial relations issues when implementing restructuring programmes. It is important that we maintain movement in the workforce and the Scheme allows us to do that in a way which does not disrupt the natural diversity in age profile in our workforce as a whole."
(1) to recognise and compensate for the difficulties that older workers have in the labour market
(2) to reward loyalty
(3) to prevent a windfall
(4) to achieve redundancies in a way that is perceived to be fair and peaceable
(5) to maintain diversity of the workforce (and reasonable flow) against an environment where there is extremely low turnover
(6) to avoid compulsory redundancies
(7) to facilitate planning and managing change with minimal business disruption
(8) to compensate those who opt for redundancy; in effect early retirement.
(a) Plainly the Scheme would cost more if it did not incorporate the cap (although whether it would cost very much more is another matter); and it was open to the Appellant, if it wished, to run that as a separate point. But it must be understood that it is a quite distinct justification from the windfall point. The windfall point is simply that if you are providing a scheme designed to compensate employees for their lost earnings it must be legitimate to incorporate provisions which prevent it paying out more than the amount of those earnings: to the extent that that argument is good, it is good whether the savings effected are £1 or £1 million.
(b) As for pension entitlement, if the point of the cap is to see that employees are not over-compensated for lost earnings (i.e. salary), it is simply irrelevant whether they are entitled, at the moment of redundancy, to receive a pension. The point would be equally good, or bad, whether they were or were not. There might, again, be depending on the facts an argument that employees who lost out under the terms of the Scheme because of an age-related provision were sufficiently compensated by receiving an immediate pension entitlement: that was, in effect, the argument run by the employers in Loxley, which we discuss below. But it is a separate point.
3 Benefits under the scheme were only paid to those under 60 at the date of redundancy. There was a tapering provision which applied to those who had reached the age of 57. The payments which would otherwise have been made to those persons were reduced by 1/36th for every month of service over the age of 57. Accordingly, those over 60 received no enhanced payment under the scheme, and were given only their statutory redundancy payment.
4 In addition to the redundancy payments, the redundancy package also sometimes consisted of a payment in lieu of notice. This was 26 weeks for those who fell within the terms of the redundancy scheme, but only the statutory notice to those over 60 who were outside it. However, the total redundancy package for those over 60 was at least £13,842. The pay in lieu was not automatic; staff could be required to work their notice period.
5 The rationale for excluding those over the age of 60 was linked to the fact that they were entitled to take their benefits under the company's pension scheme at the age of 60. Until sometime around 1996, staff were required to retire at 60 on a full pension. Plainly it would have provided employees close to retirement with a windfall if they had been entitled to take the full redundancy payment. They would have been better off being made redundant than if they had simply worked until retirement. Hence the original justification for the tapering provisions from the age of 57.
Subsequently to the introduction of the scheme, the normal retiring age for employees was raised to 65; but no changes were made to the terms of the scheme. The claimant was made redundant at the age of 61. He was accordingly not entitled to any payment under the scheme. He claimed under the 2006 Regulations. Plainly the non-payment of any sum under the scheme was due to his age: the issue was thus one of justification. The employer could not, as Elias P. observed at para. 6 of the judgment, advance any windfall justification because the extension of the retiring age to 65 meant that employees dismissed after age 60 had suffered a loss of the right to continue to age 65. Instead, therefore, it sought to rely on the fact that the claimant was entitled to an immediate and, to all intents and purposes, unreduced pension. The employment tribunal failed properly to address that issue, and the case was remitted for reconsideration, with some observations on how the task should be performed. The actual ratio of the case is thus irrelevant to the windfall issue. However, the legitimacy of a windfall argument was apparently the subject of submissions, and Elias P. went out of his way to address that question (we suspect because he and the lay members will have been well aware of the prevalence of tapers and other provisions in redundancy schemes aimed at preventing a windfall). There seems to us to be a clear, albeit implicit, recognition at para. 5 of the judgment, which we have set out above, that provisions properly directed at the prevention of a windfall were likely to be justifiable. But the recognition becomes explicit at para. 37 of the judgment, where Elias P. says this:
We reject the claimant's submission that preventing a windfall cannot be a legitimate feature of the scheme. One of the purposes of a redundancy scheme of this nature is to cushion workers from the effects of losing their income. This is not required, or at least not to the same extent, where pensions are paid. Indeed, if the position still were that retirement automatically took place at the age of 60 then an employer would in our view manifestly be justified in having a rule which prevented the employee being better off as a consequence of receiving redundancy pay than he would have been if working until retirement age [our emphasis]. That is what the tapering provisions originally achieved until the extension of retirement age in 1996. This is a legitimate means of securing the aims of the scheme. Similarly, it is legitimate to seek to ensure that the aims are achieved in an equitable and fair way. Whether these are better described as aims or as proper means of achieving the aims is perhaps a matter of semantics.
The relevance of the reference to "pensions" in the third sentence of that passage is not entirely clear, but no doubt it reflects the particular issues in that case. But the fourth sentence, which we have italicised, is entirely clear and in our view constitutes a statement of principle. Ms Genn placed considerable weight on this passage in her submissions to the Tribunal.
(1) At paras. 44-50 the Tribunal addressed an argument which had apparently been advanced orally (it does not appear in Ms Gamaz's statement) to the effect that the existence of the cap encouraged employees involved in a redundancy exercise in their late fifties and early sixties to volunteer for redundancy because they would appreciate that if they took a chance on waiting until the next redundancy exercise they might receive a lesser sum. It rejected that argument on the basis that there was no real evidence that that was either the intention or the effect of the cap. It made the point that potential candidates for voluntary redundancy would only be affected (if at all) by the consideration in question if they were aware of the cap; and it found that such knowledge was not in fact widely disseminated.
(2) At paras. 51-52 it addressed the windfall argument. At para. 51 it recited that the Appellant relied on Loxley, and it quoted most of para. 37, which we have set out above. It continued, at para. 52:The Tribunal did not accept that that paragraph assisted the Respondents. The position in the case before us is demonstrated by reference to the chart produced by the Claimant's representative. All the people over the age of 60 who had similar length of service to the Claimant would receive a pension but only those who were under the scheme based on the 3.5 week redundancy payment scheme. Clearly, the circumstances in Loxley can be distinguished as all the comparators in this case are ones who receive a pension in the same way as the Claimant. The only difference between them is that one is older than another.(The "chart" referred to was a table produced by Ms Burne which identified the payments available to the Claimant and to hypothetical employees in the same position as him but who were not so close to retiring age. It does not in fact show anything about their pension positions.)
(3) At para. 53 it dismissed any attempt on the part of the Appellant to justify the cap by reference to the costs which it saved, on the basis that the costs in question appeared on the evidence to be negligible.
(4) At paras. 54-55 it rejected the arguments based on the need to reward long service and to manage change, on the basis which is clearly correct that these aims, although no doubt legitimate, had nothing to do with the cap.
(5) It summarised its position on the question of "legitimate aim" at para. 56 in the following terms:Overall, therefore, looking at whether there are legitimate aims, we are satisfied that there are a number of legitimate aims in the scheme as it exists but we are not persuaded that those aims are ones that make it legitimate to impose the cap. Nor are we persuaded that the cap is such an integral part of the scheme that it has to be looked at in the round. The Respondent has not produced any evidence to show that it is an indivisible part. It is a part but the scheme as drafted could run quite easily without it.
(6) Finally, at paras. 57-58, the Tribunal considered whether, if contrary to its primary conclusion there was some legitimate aim for the imposition of the cap, its imposition constituted a proportionate means of achieving that aim. It said, at para. 57:The only legitimate aim that might be considered as affecting the cap relates to windfall. In looking at what is proportionate we must be guided by the case of Bilka-Kaufhaus GmbH v Weber Von Hartz is there a real need and therefore is it appropriate with a view to achieving the objectives pursued? The proportionality requires an objective balance to be struck between the effect of the measure and the needs of the undertaking: Hardys & Hansons plc v Lax 2005 IRLR 726. The loss to the Claimant is just over £13,000. The loss to another person in this round would have been a further £35,000. These amounts are significant to the Claimant and to his colleague. Taken as a proportion of the redundancy bill, they are not significant to the Respondents.
3. The Employment Tribunal erred in law when it concluded that the aims identified by the Appellant were neither legitimate nor proportionate in relation to its determination of indirect discrimination, and in so doing wrongly considered the application of the cap as divisible from the scheme as a whole.
4. The Employment Tribunal erred in law in reaching a Judgment that no reasonable Employment Tribunal taking proper consideration of the facts and law could have reached in that the Employment Tribunal's Judgment is premised on taking account of irrelevant matters, and ignoring relevant matters and evidence.
Those grounds are extremely general, but they are particularised over several following pages.
(1) It is in our view self-evident that the object of the Scheme was indeed to compensate employees who took voluntary redundancy under it for the loss of the earnings that they had a legitimate expectation of receiving if their employment had continued. That is the general understanding of the purpose of a redundancy payment. As it is put in Harvey on Industrial Relations and Employment Law (see para. E ):The British view of a redundancy payment is that it is in the nature of compensation to the employee for loss of his job; that is to say, for the loss of his expectation of continued employment. It is, so to speak, the price he receives for the compulsory purchase of his existing employment.In Mairs v Haughey  1 AC 303, which concerned the taxable status of a contractual redundancy payment, Lord Woolf said this, at pp. 319-320:In order to decide whether payments made under [a non-statutory redundancy scheme] are taxable under Schedule E, it is necessary to identify the qualities of a genuine non-statutory redundancy payment Redundancy, whether statutory or non-statutory, involves an employee finding himself without a job through circumstances over which he has no control. It is also a quality of redundancy that it does not give rise to a right to compensation unless the employee has been employed for a minimum period and that the right when it accrues increases, initially, with the period of employment and then subsequently reduces until eventually the employee loses any right of payment upon his reaching normal retirement age.We note Lord Woolf's reference to redundancy payments reducing as the employee approaches normal retirement age. That is certainly in our experience a standard feature of contractual redundancy schemes and was until recently also a feature of the statutory scheme (as to this, see para. 21 below.)
(2) It necessarily follows that unless the Scheme incorporated a cap it would result in payments which exceeded what was necessary to achieve that object in cases where the employee was close to retirement age. To take the extreme example referred to at para. 7 above, what in such a case - we ask rhetorically - would the employee be receiving his £90,000 for ?
(3) That being so, it in our view also necessarily follows both that it is legitimate for a redundancy scheme to incorporate a provision designed to prevent such excess compensation and that the cap in the present case was a proportionate means of achieving that aim: indeed, it does so with precision, and arguably more accurately than by the application of a taper, which is the other means commonly employed.
(1) The Employment Judge is said, in effect, to have got the wrong end of the stick at an early stage of the hearing, claiming that the question of the age that employees became entitled to pension was "crucial" and had not been properly addressed by the Appellant in its evidence. She insisted on a short adjournment to enable further instructions to be obtained. But the point was in fact of no significance.
(2) Following the adjournment the Tribunal saw counsel and solicitors in the absence of their clients to ascertain what the result of the further enquiries was. On that occasion the Judge is said to have asked Ms Genn "quite emphatically" why the Appellant was defending the claim. She is said to have said that it would be hard to justify the cap given the smallness of the savings effected by it. Ms Bradley says that she showed irritation and frustration when Ms Genn made it clear that the Appellant was sticking to its guns.
(3) Following these two incidents, the Judge is said to have maintained "an irritated and impatient approach" towards the Appellant. Ms Bradley goes so far as to say that in ten years' experience she "[had] never previously experienced such clear antipathy towards a party as demonstrated by the Employment Judge on this occasion". It is in fact unclear whether that comment is directed to the Judge's comments during the hearing generally or only to the episode summarised at (2) above; but Ms Bradley gives no evidence of any other incident during the hearing, and apart from that episode she appears to base her allegations of bias on what she takes to be the hostile tone of the Reasons.