Heskett v Secretary of State for Justice

The Court of Appeal has held that indirect age discrimination can potentially be justified on the basis of saving costs to balance company books.

The Equality Act 2010 outlines that indirect age discrimination is when a provision, criterion or practice (PCP) is applied to everyone and is apparently age neutral, but which:

  • disadvantages more people in one age group than in another
  • causes an individual employee a disadvantage
  • is not justifiable as ‘a proportionate means of achieving a legitimate aim’.

Previously, a number of cases have addressed whether a discriminatory policy can be justified on the basis of saving costs. Generally, such a reason is not held to be legitimate, however the Employment Appeal Tribunal (EAT) held in Cross and others v British Airways plc that that whilst cost saving cannot on its own amount to a legitimate aim, it may be taken into account alongside other factors. This is known as the ‘cost-plus’ rule.

In the case of Department of Constitutional Affairs v O’Brien, the Supreme Court found that whilst the sound management of public finances may constitute a legitimate aim, it will not be legitimate to simply try to save money through deliberate discrimination.

FACTS

In this case, the employee had worked in the public sector for some time as a probation officer. Due to pay rise limitations implemented by the Treasury in 2010, the organisation he worked for introduced a new pay progression policy. Whilst in the past probation officers could progress three points up the pay scale per year, the new policy meant that they could only progress one pay point per year.

From the employee’s perspective, this meant it would take him 23 years to progress to the top of his pay band. Meanwhile, colleagues that had already attained this, or were nearer to the top than he was, started to earn significantly more than those below them. As individuals in this position tended to be over 50, the employee claimed indirect age discrimination, arguing employees under 50 in his position were being placed at a disadvantage by the new policy.  

ET

In the first instance, the employment tribunal (ET) did agree that the policy had served to indirectly discriminate against the claimant on the basis of his age. However, they dismissed his claim as they found it had amounted to a proportionate means of achieving a legitimate aim.

The tribunal explained that although the aim of the respondent had been to cut costs, there were also other factors to consider. The policy had been designed to enable to them to ‘live within their means’ and was only intended to be temporary. Whilst it could not be justified on a long-term basis, it was a proportionate short-term response to the financial situation the respondent was facing.

The employee appealed.

EAT

The EAT dismissed his appeal. In forming their decision, they held that it was legitimate for an organisation, such as the respondent, to seek to break even.

The employee appealed again to the Court of Appeal. They argued that the respondent’s argument was purely based on saving costs, contrary to the law, and that there was no evidence that this policy was short-term, meaning the tribunal had erred by relying on this in their judgement.

COURT OF APPEAL

The Court dismissed the appeal on all grounds.

Considering previous case law on the ‘cost-plus’ principle, they agreed that a respondent cannot justify discrimination in pay purely on cost saving grounds. Therefore, what needed to be determined was if their actions were simply to save money, or if they had other aims they wished to achieve. The Court held that the ‘cost-plus’ label, whilst not incorrect, could serve to turn attention from this key question.

Agreeing with the EAT, the Court held that the need to balance company books could be considered a legitimate aim. The tribunal had therefore been correct to place weight upon the situation facing the organisation and the next thing to determine was whether an alternative policy could be implemented that would have removed the discriminatory aspect.

Ultimately, the Court concluded that there was no reason why the argument that ‘short-term’ urgent measures that had a discriminatory element could not be justified depending on the circumstances. They rejected the idea that there was no evidence this policy would be temporary, as it had come about as a direct result of the financial situation of the Treasury and this was not expected to be a permanent issue.

Note for employers 

This case does seem to confirm that the ‘cost-plus’ rule remains in place, and indeed this case would never have overturned it anyway due to the previous Supreme Court ruling. Therefore, the ‘cost-plus’ rule could be a defence within indirect discrimination claims, however this will be very case specific, as seen here. Simply attempting to save money will not fall under this bracket.

They key issue to remember is that whilst balancing the books can be a legitimate aim, organisations will still need to demonstrate they are managing their budget carefully. They will also need to show that other, non-discriminatory solutions have been considered.

« Back to News