UK: Discrimination - Court of Appeal rules that costs alone cannot be justification

Employers must establish some legitimate reason other than saving costs in order to justify discrimination. The Court of Appeal has declined to take up obiter suggestions that disproportionate cost might itself be capable of justifying discriminatory treatment, but its decision leaves a doubt as to how difficult it may be to identify another reason. If one can be identified, the key question will remain whether treatment is proportionate in terms of objectively balancing the discriminatory effect of the treatment and the employer's legitimate needs.

The Court of Appeal has ruled that an employer was justified in its decision to time a redundancy dismissal so as to avoid the employee accruing generous pension entitlements should he continue in employment to the age of 50, notwithstanding that as a result no formal redundancy consultation had taken place prior to giving notice.

The Court upheld the decision of the EAT and ET that the case was one of "costs plus" justification of age discrimination. It recognised that there is some degree of artificiality in having to find a non-costs factor. However, it maintained that approach and confirmed that treatment aimed solely at saving costs cannot be justified.

Rimer LJ gave as an example of "costs alone" treatment a decision to pay A less than B simply because it would cost more to pay them the same. In this case "costs alone" treatment would have been a decision to dismiss at the relevant time simply to avoid the extra costs of dismissing once the employee was 50.

Here, the additional factor was the legitimate aim of wishing to give effect to its genuine decision that the employee was redundant. Given that the alleged discrimination here was the timing of the dismissal (prior to completing formal consultation) rather than the selection for redundancy itself, the additional factor arguably ought to relate to the timing. Although not expressly stated, presumably the Court considered it a legitimate aim to wish to give effect to the redundancy decision without further delay.

Having identified the additional legitimate aim, it was then for the Court to decide whether the treatment was a proportionate means of achieving the aims. The significant level of cost saving was relevant to this, as was the fact that the employee knew of his impending redundancy almost a year prior to notice being given, the employer had engaged in informal consultation for a lengthy period, the delay to the start of formal consultation was no-one's fault, and the employee could not have had any expectation at the start of the process that he would continue in employment to the age of 50. Set against these were the lack of formal consultation prior to the dismissal notice being given, but in the particular circumstances of this case the Court considered that this did not deprive the employee of anything of value. The lengthy informal consultation had already lead to the conclusion that there was no alternative role the employee would have accepted, and formal consultation could have continued during the notice period had the employee been willing to cooperate.

The Court denied leave to appeal, so Mr Woodcock will have to apply to the Supreme Court for leave if he wishes to take it further.

The decision is helpful for employers in confirming that costs can form part of the equation and in confining "costs alone" cases to decisions made without any other business context, based on nothing more than saving cost. However, suggestions that the ruling opens the door to earlier dismissals of long-term sick employees, refusal of PHI to older workers and the use of LIFO for redundancy selection may be overstated. If employers can show a non-costs aim to support such treatment (and it is uncertain whether aims such as maintaining workforce morale through inter generational fairness or rewarding loyalty will be sufficient), they will still need to show that their approach is proportionate bearing in mind the level of cost and the degree of discriminatory impact.

Even in relation to pension windfalls, the facts in this case were quite stark and unusual, in terms of the generous way in which the employee had been kept on for several months despite clearly being redundant, the size of the windfall and the lack of any legitimate expectation that the process would last long enough for him to reach 50. The position in other cases is likely to be more finely balanced. (Woodcock v Cumbria Primary Care Trust, CA)