UK: Voluntary redundancy/early retirement: employers may be able to set budget and use severance cost as a criterion for selection of volunteers

An employer may be justified in selecting those with the cheapest entitlements under a voluntary redundancy/early retirement scheme when seeking to reduce headcount within a fixed budget, despite the indirectly discriminatory effect on a particular age band.

In this case the employer had a set budget for a voluntary redundancy/early retirement scheme.   Subject to ensuring a balance of experience, the employer accepted applications from employees whose entitlements would cost the least (the Cheapness Criterion). This disadvantaged those aged 50 to 54, but its use had been supported by the recognised union.

The EAT found that the aim of the Cheapness Criterion was to reduce the number of applicants at a cost which came within the set budget and/or to reduce headcount so that the business could break even.  Both potential aims were legitimate, and the use of the Cheapness Criterion was held to be a proportionate means of achieving them given it was the only practicable criterion in this case (though the EAT thought this might not always be so).

The EAT considered that the employer was entitled to set its own budget for a particular project (which was not directly discriminatory), even if it could have afforded more and even if that meant that selection had to be made between applicants and it turned out that this required a selection exercise which could only practicably be done on a basis involving some indirect age discrimination.  This was contrasted with an employer trying to justify the continuation of a directly age discriminatory pay provision, where the employer (probably) cannot rely on the cost of removing it as the sole justification.

The tribunal, perhaps wrongly, had concluded that the case was one involving "costs plus" justification, but as this was not challenged on appeal the EAT declined to enter the debate as to whether costs alone can justify discrimination.  The Court of Appeal's judgment in Woodcock v Cumbria Primary Care Trust (reserved on 7 December 2011) will hopefully shed some light on this issue.

The EAT upheld a second claim of indirect sex discrimination from an employee excluded from the scheme because she was on a career break and not expected to return prior to a specified date.   Although the exclusion of employees on long-term absence was in principle capable of being justified, it was not proportionate where those on career breaks were entitled to return early but were not informed of the specified date and were thereby deprived of the opportunity to make themselves eligible.  (HM Land Registry v Benson, EAT)