Employment and Immigration Update - When can costs be used as justification for discrimination?


27 November 2020

The Court of Appeal has recently handed down a judgment in which it has clarified the circumstances when cost considerations can be used by an employer to justify an act of indirect discrimination.

Heskett v Secretary of State for Justice [2020] EWCA Civ 1487

Facts

This case concerns a claim of indirect age discrimination brought by a probation officer employed by an executive agency, the National Offender Management Service (NOMS), which has since been disbanded. The officer claimed that as a younger employee of 38 years old, he was disadvantaged by the introduction of a new pay progression scheme which would substantially increase the time it would take for him to progress from the bottom of the pay band to the top.

The new pay progression scheme was introduced in 2010 in response to the Treasury announcing a public sector pay freeze. The claimant argued that it would take him in the region of 23 years to progress from the bottom of his pay band to the top, instead of eight or nine years. He claimed that this amounted to a ‘provision, criterion or practice’ (PCP) which disadvantaged younger employees, who were less likely to have reached the top of the applicable pay scale when the new scheme took effect.

An employment tribunal accepted that this PCP placed people of the claimant’s age at a particular disadvantage compared with those aged over 50, and that the claimant was himself put to this disadvantage. In considering whether the PCP was objectively justified, the tribunal rejected the claimant’s argument that as the principal driver for the changes was cost, this could not by itself amount to a legitimate aim. The tribunal found that the aim of the new pay scheme was not simply cost cutting, but it was introduced as a way to deal with reduced financial means. This is different to purely seeking to save costs – it was a way of achieving the objective, rather than the objective itself.

The tribunal was satisfied that the PCP (the pay scheme) was a proportionate short-term response to the extreme financial stringency imposed by the Treasury.

The claimant’s appeal to the Employment Appeal Tribunal was rejected. The tribunal was entitled to draw a distinction between the absence of means and an employer seeking to solely rely on cost as a justification for a PCP. The claimant appealed to the Court of Appeal.

Court of Appeal decision

In reviewing the authorities on the use of ‘costs’ as justification for a PCP, the court confirmed that an employer cannot justify making a lower discriminatory payment to an employee simply because it would cost more to pay them the same as another employee. If the employer’s aim is solely to save costs, that will not be enough to justify the discrimination. It is for the tribunal to look at the employer’s overall aim, in order to decide whether that aim is legitimate.

In the current case, the court agreed that the employer’s need to reduce expenditure in order to balance its books could constitute a legitimate aim for the purposes of justification. Even if the measures adopted could not necessarily be justified in the longer term, they could be justified as a proportionate means of responding to the problem in question.

Consequences

This decision is a helpful clarification of what has previously been referred to as the ‘costs plus’ principle, meaning that costs alone could not be used as justification for an act of indirect discrimination. It demonstrates what can be a subtle distinction between using cost as justification, and reducing costs in order to achieve the legitimate objective of operating within constrained financial means. If an employer can provide evidence that this is the motivation behind a PCP, rather than simply a cost-saving measure, it will have a greater chance in succeeding in defending a claim for indirect discrimination. Exactly what evidence of a need (rather than a desire) to reduce costs will be sufficient to satisfy a tribunal remains to be seen, but it will perhaps be easier for public sector employers to meet this requirement.

These articles are from the November 2020 issue of Employment and Immigration Law Update, our monthly newsletter for HR professionals. To download the latest issue, please visit the newsletter section of our website. For further information please contact Liz Stevens or another member of Birketts' Employment Law Team.

The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at November 2020.