Age discrimination - enhanced redundancy pay

By Kate Russell of Russell Personnel & Training

With redundancy being an ongoing concern to many companies, it’s worth noting that enhanced redundancy schemes may be discriminatory on grounds of age. Schemes that pay out based on age, differentiate on age grounds and are therefore unlawful.

Schemes based on length of service are likely to be indirectly discriminatory because younger employees are likely to have less service than their older colleagues.

Enhanced redundancy pay made on this basis can be defended if either the scheme falls within a statutory exception, or can be objectively justified. The age discrimination legislation provides an exemption for enhanced redundancy schemes that mirror the statutory redundancy payment framework.

There are special conditions. The essence of those conditions is that enhanced redundancy pay must be calculated in the same way as statutory redundancy pay, except that there is no limit to the amount of week's pay which can be taken into account. The amount may be increased (but not reduced) by applying a multiplier either to the amount of a week's pay used in the calculation or to the result of the calculation.

There have been several cases dealing with enhanced redundancy pay recently.

In one case, a company paid three weeks gross pay for each year’s service under 40 years of age and four weeks gross pay for each year above it. The tribunal found that the scheme discriminated against younger staff, did not comply with the statutory exception and was therefore not objectively justified. Galt v National Starch and Chemical Ltd.

In another case Mr Loxley was excluded from a voluntary redundancy scheme because he had reached the age of 60. Further, there were tapering provisions in place between the ages of 57- 60. Mr Loxley claimed that the scheme went against him on grounds of age discrimination. The Employment Appeal Tribunal found the tribunal had not properly considered the issue of justification. While it was potentially justifiable both to exclude from a redundancy scheme those who are entitled to immediate benefits from their pension fund and to use tapering provisions, the court said that the tribunal couldn’t draw a conclusion on this as it had not analysed the financial information available to it. It therefore remitted the case to a new tribunal to be heard again. Loxley v BAE Systems Land Systems (Munitions and Ordnance).

The EAT has set out some general guidelines to help determine whether age discrimination in any particular redundancy pay scheme can be objectively justified. The following matters can generally be taken into account in considering justification, although none will be determinative on its own:-

-creating job opportunities for younger people;
-the amount of pension to which the employee will be entitled;
-whether a trade union approved the scheme;
-preventing a cash windfall shortly before retirement;
-providing extra help for older workers because they may find it more difficult to get other jobs.

Actions for employers

Review contractual redundancy schemes.
if the scheme is discriminatory, consider whether it is justified.
If the scheme can’t be justified replace it with a scheme mirroring the statutory redundancy scheme. It will then be exempt from the provisions of the age regulations.

Russell Personnel & Training is running a free workshop, Getting Redundancy Right, in Milton Keynes on 24th November. Call 0845 644 8955 or email info@russell-personnel.com for more information

Contributor's Note

Kate Russell is a human resources expert. She specialises in employment law and practical problem solving in the workplace. A qualified barrister, she worked in industry before setting up her own business. For the last 10 years she has headed Russell Personnel & Training, working with a crack team of experts.

Kate’s unusual combination of legal training, line management background, and hands-on HR experience has resulted in her being an accomplished advisor and trainer in employment law. She is a charismatic speaker, and her brisk no-nonsense style has earned her the nickname of ‘The Headmistress’. It’s demonstrated by her robust, down-to-earth application of employment law, balanced against the reality of working life.

Kate delivers a variety of training courses and seminars to small businesses and large companies, and across every industry. She is the author of several successful books, and records a quarterly audio update called ‘Law on the Move’. She offers a retained service to companies who require regular HR advice.

In the current climate of organisational development, Kate’s relentless research into the ever changing world of employment law is an invaluable aid to any business. Whether she is holding a seminar on how to reduce sickness absence, hosting a virtual conference, or chairing a disciplinary meeting on behalf of her clients, Kate can ensure that they become risk aware (while there’s still some time to do something about it). This in turn means that they learn the skills and confidence necessary to manage and reduce those risks.

Ultimately, the business will save time and money, and this means profit on the bottom line.