News & events
01/05/2012 - Employment Law Case Update
Can cost savings justify discrimination?
In the case of Woodcock v Cumbria Primary Care Trust, the Court of Appeal has upheld the Employment Tribunal's decision that a chief executive, who was dismissed by reason of redundancy without proper consultation in order to avoid an enhanced pension entitlement, did not suffer unlawful age discrimination.
Mr Woodcock was the chief executive of North Cumbria Primary Care Trust (the PCT). Several Primary Care Trusts in the area were set to merge and this meant that some of the chief executives would be made redundant. Mr Woodcock's contract of employment provided that he would be given 12 months' notice of termination.
Mr Woodcock had been made aware that he may be redundant in early 2006 and was advised that he was at risk in September 2006. Mr Woodcock was then invited to a meeting on 10 April 2007 to start the redundancy process. Due to other engagements, the meeting could not take place until 6 June 2007. The PCT felt that Mr Woodcock was attempting to delay the meeting so that he would continue in employment until after his 50th birthday, on 17 June 2008. If this were to happen, Mr Woodcock would be entitled to an enhanced pension, which would have been at a cost of £500,000 to £1m to the taxpayer. Therefore, the PCT gave Mr Woodcock his notice on 23 May 2007. This was before proper consultation had occurred, which started at the meeting on 6 June 2007. Mr Woodcock brought a claim against the PCT for age discrimination.
An employer directly discriminates against an employee if, due to their age, it treats the employee less favourably than it treats or would treat other persons and it cannot show that the treatment is ‘objectively justified'. Treatment will only be justified if it is a proportionate means of achieving a legitimate aim.
So can the avoidance of cost to an employer be a legitimate aim? The answer from previous cases has been ‘no', cost savings alone will not justify discrimination. However, costs can be considered as part of the justification when other relevant factors are also present. This is often referred to as the ‘cost plus' approach.
The Court of Appeal held that whilst the treatment of Mr Woodcock had been less favourable due to his age, it was justified. Following the earlier cases, the Court confirmed that if the PCT's treatment of Mr Woodcock had been solely due to the avoidance of costs, this would not be justified. It concluded that in this case it could not be said to be a costs saving exercise alone. Mr Woodcock's notice had been given in order to terminate his employment by reason of redundancy, which was a legitimate aim. Part of that aim could include cost saving and the fact that Mr Woodcock should not receive an "undeserved windfall”. In the circumstances, the legitimate aim was proportionate – Mr Woodcock would have been made redundant regardless of whether he had been through the proper consultation process – and therefore the treatment was justified.
- In appropriate circumstances it may be possible to consider costs savings as part of the balance in justifying discrimination – but the position continues that costs alone will not justify discrimination.
- Age discrimination continues to be a difficult area for employers and advice should be taken before taking action which would discriminate against an employee.