News & Insights

Can Cost Considerations be used as a justification for discrimination?

A recent Court of Appeal judgement provides clarification.

Background

The Court of Appeal (CA) has provided clarification on the use of cost considerations as a justification for indirect discrimination.

Indirect discrimination occurs when an employer applies to an employee a provision, criterion, or practice (PCP) which is discriminatory in relation to a relevant protected characteristic of the employee (in this case age).

The PCP is discriminatory if:

  • The employer applies it (or would apply it) to persons with whom the employee does not share the characteristic
  • It puts (or would put) persons with whom the employee shares the characteristic at a particular disadvantage when compared with others who do not share the characteristic
  • It puts (or would put) the employee at a disadvantage; and
  • The employer cannot show it to be a proportionate means of achieving a legitimate aim.

The facts

The case concerned an employee who worked for the National Offender Management Service (NOMS). NOMS operated under the sponsorship of the Ministry of Justice (MoJ), which was responsible for setting its annual budget.

NOMS operated a pay progression system in which certain jobs were placed in a pay band. Within each band was a scale of “spinal points” corresponding to particular salary figures. Employees would progress up the scale by three spinal points each year. In 2008, the employee was promoted to band 4, comprising 25 spinal points, meaning that he could have expected to reach the top of the band in eight or nine years.

However, as a result of a public sector pay freeze introduced by the Government in 2010, NOMS reached an agreement with the trade unions to reduce the rate of annual progression in bands 3-6. Consequently, it would take the employee considerably longer to reach the top of band 4.

In 2016, the employee (who was then 38) brought a claim for indirect age discrimination against the MoJ primarily on the basis that the revised rate disadvantaged younger employees, including himself, because they were less likely than older colleagues (over 50) to have reached the top of the applicable pay band when it came into force.

The decision

The tribunal accepted that NOMS had adopted a PCP that placed people of the employee’s age at a particular disadvantage compared to those over 50, and that it placed the employee at a disadvantage. However, the tribunal found that the PCP was a proportionate means of achieving a legitimate aim.

Although the employee argued the PCP was a cost-cutting measure, which cannot amount to a legitimate aim, the tribunal disagreed and decided instead that NOMS’s aim was more nuanced. As with any business, it needed to “live within its means” and the measures adopted were its means of doing so. The tribunal held that NOMS was forced to implement the PCP by an “absence of means”, which is distinguishable from cost-cutting.

Regarding proportionality, the short-term nature of the PCP, together with the fact that more radical changes would have been rejected by the trade unions and it was not open to NOMS to make redundancies, were all relevant for the tribunal.

The case was eventually brought before the CA which rejected the employee’s appeal.

In its decision, the CA clarified the so-called ‘cost plus principle’ and found that “the essential question is whether the employer’s aim in acting in the way that gives rise to the discriminatory impact can fairly be described as no more than a wish to save costs. If so, the defence of justification cannot succeed.” If not, however, the court will come to a fair characterisation of the employer’s aim as a whole and determine whether or not it is legitimate.

The CA also recognised that the need to reduce expenditure and staff costs to balance the books can constitute a legitimate aim. The CA held therefore that the tribunal was entitled to treat NOMS’s requirement to observe the financial constraints imposed on it by the pay freeze as a legitimate aim.

Considerations

The implications of this decision are significant and could make it easier for employers to rely on cost as a justification for a policy that is discriminatory, provided the underlying aim of the policy is not merely to save costs, but is required to enable the employer to live within its means. The policy must also be proportionate.

The distinction made between cost-cutting and ‘absence of means’ is undoubtedly a subtle one and will always depend on the specific circumstances of each case, both of which the CA acknowledged in its decision.

If you have, or are planning to introduce policies, that could place a group of employees with a shared protected characteristic at a disadvantage, then please do contact us ([email protected]) so we can help assess your risk.