Age discrimination and pension costs

Woodcock v Cumbria PCT

The Court of Appeal has confirmed in Woodcock v Cumbria PCT that potentially discriminatory decisions cannot be justified on the grounds of cost alone, despite the fact that in this case the timing of a decision to make the employee redundant was to avoid enhanced pension costs on redundancy.

Background

Under the Employment Equality (Age) Regulations 2006 substantially re-enacted in the Equality Act 2010 “less favourable treatment” on the grounds of age is direct discrimination, unless the action is objectively justified, that is, a proportionate means of achieving a legitimate aim.

Case summary

The issues in this case arose in 2008.  At that time Mr Woodcock was Chief Executive of North Cumbria PCT.  He was to turn 50 on 17 June 2008, when he would become entitled to a substantially enhanced NHS pension, which would cost his employer up to £1 million.

Under Commissioning a Patient Led NHS (“CPL NHS”), several PCTs were to merge to become Cumbria PCT and Mr Woodcock had to apply for the Chief Executive role in that PCT.  Under CPL NHS his employment was guaranteed until 30 June 2007 and he had a contractual 12 month notice period.

Mr Woodcock was advised his application for the Chief Executive role was unsuccessful in July 2006.  Although Mr Woodcock was then told in September 2006 that he was at risk of redundancy, he was not given notice at that time.  There were then discussions with him about alternative employment before he was invited to a formal redundancy consultation meeting on 10 April 2007 but he was unavailable so the meeting did not take place until 6 June 2007.

The employer believed Mr Woodcock was trying to delay the process so that his employment ended after his 50th birthday.  Therefore and although a formal consultation had not started (a pre requisite of a fair redundancy  process/dismissal), on 23 May 2007 Mr Woodcock was given notice that his employment would terminate on 22 May 2008, well ahead of his 50th birthday, unless alternative employment could be found.

Once his employment ended Mr Woodcock issued proceedings claiming age discrimination.  The issue in the claim was whether the decision to issue notice on 23 May 2007 amounted to less favourable treatment on the grounds of age and, if so, was it objectively justified.

Employment Tribunal

The claim was dismissed by the Employment Tribunal (ET), which found that the decision to issue notice when it did had been less favourable treatment on the grounds of age, which was motivated by realising that notice served after Mr Woodcock’s 49th birthday would result in him being entitled to a significantly enhanced pension.  The ET found the Trust’s legitimate aim was to end Mr Woodcock’s employment on the grounds of redundancy, so as to avoid the additional enhanced pension liability and determined that effecting his dismissal without consultation was a proportionate means of achieving that legitimate aim.

The ET identified in its decision that the Trust had a “cost-plus” justification for its decision, established authority being that cost alone could not be used to justify discrimination.  Specifically, that Mr Woodcock’s role had become redundant in July 2006 and the Trust had therefore been generous in not giving notice at that time, as it should have done under its own policy and he could therefore have no legitimate expectation of getting “within striking distance” of his enhanced pension entitlement.

Employment Appeal Tribunal

Mr Woodcock unsuccessfully appealed to the Employment Appeal Tribunal (EAT).  The EAT rejected Mr Woodcock’s assertion that it was disproportionate to deprive him of a consultation meeting.  It found that Mr Woodcock had benefited from a much longer notice period than he could have legitimately expected and whilst there had not been a formal consultation there was a dialogue about alternative employment options and the Trust was justified in accelerating the giving of notice to avoid a significant pension liability.

The EAT made an interesting obiter (not binding on future courts) statement on the issue of relying on cost to justify discrimination, specifically that rejecting cost alone but accepting a cost plus justification created “artificial game playing” to find non-cost related factors, which could produce complex and arbitrary reasoning.

Mr Woodcock was given leave to appeal to the Court of Appeal.

Court of Appeal

The Court of Appeal agreed with the ET and EAT that dismissing Mr Woodcock without proper consultation was discriminatory.  However, this was a proportionate means of achieving a legitimate aim.

This was because Mr Woodcock’s treatment was not only aimed at saving or avoiding cost.  The notice of dismissal had not had the sole aim of saving the Trust costs but was served to give effect to a genuine decision to terminate his employment by reason of redundancy. The role had become redundant in 2006 and he should have been made redundant on 30 June 2006. Making him redundant was a legitimate aim, and it was legitimate for the Trust to save the extra cost that it would have incurred if the dismissal had been effective after his 50th birthday.

Mr Woodcock had also argued that the treatment of dismissing him without proper consultation was disproportionate.  The Court of Appeal said there should be an objective balance between the discriminatory effect of the treatment on the employee and the needs of the employer.  The Court of Appeal decided depriving Mr Woodcock of his right to consultation, in advance of giving him notice, had not fatally undermined the proportionality of the Trust’s treatment.  In any event, consultation would not have achieved anything.

The Court of Appeal emphasised the “unusual facts of this case” and said Mr Woodcock had, by 2007 “no right, entitlement or expectation” to enjoy enhanced pension benefits if he stayed at work until he was 50.  It would have been “a pure windfall”.

Conclusion

Despite cost clearly having been a powerful factor in the decision to dismiss Mr Woodcock’s claim, it is clear that the discriminatory dismissal of employees to avoid additional pension or redundancy costs still carries high risk for employers.  In this case both the EAT and Court of Appeal referred to the generous treatment that Mr Woodcock had already received.

The main proposition of law addressed – can cost alone justify discrimination – remains undisturbed, despite the obiter comments of the EAT Judge.  Cost alone cannot justify discrimination – therefore the “cost plus another factor” approach must still be followed to robustly defend discrimination claims.