Holistic aims

Employers can justify claims of direct age discrimination by showing that it was a proportionate means of achieving a legitimate aim. In BAE Systems (Operations) Ltd v McDowell, the Employment Appeal Tribunal (EAT) held that when considering whether the aims were justified, tribunals have to consider them holistically rather than separately. 

Basic facts

The company operated an enhanced redundancy scheme which applied a cap of 78 weeks’ pay and a taper from the age of 63.5 onwards.  This meant that an employee who reached the age of 65 would receive nothing. After almost 30 years of employment Mr McDowell was warned in 2014 that he was at risk of redundancy.   He had planned to continue working until August 2016. 

When he realised he would be subject to the cap under the severance scheme, he lodged a grievance which was rejected on the basis that the severance calculation was a proportionate means of ensuring that limited funds available for redundancy payment were allocated across the workforce fairly. In addition, as he was close to the age at which he could draw his pension, he was cushioned against the loss of employment.

Mr McDowell was subsequently dismissed by reason of redundancy on 31 January 2015.  As he had turned 65 on 10 January 2015, he received his statutory redundancy entitlements but nothing under the enhanced contractual redundancy scheme. He claimed direct age discrimination.

The company accepted that the cap was discriminatory on the ground of age but argued that it was a proportionate means of achieving its legitimate aims. For instance, to reward loyalty and to compensate for loss of employment; to ensure that “finite funds” were allocated fairly; and to avoid a situation in which employees were reluctant to retire because they were holding out for a redundancy payment and so receive payments in excess of loss of earnings (the windfall argument). 

Tribunal decision

Although the tribunal accepted that the company’s aims were legitimate, it was not satisfied, after testing each of them separately, that the cap was a proportionate means of achieving those aims.  For instance, whilst it accepted that the company’s funds were not unlimited, it had not provided any evidence of what those limits might be and how they might impact on the decision to maintain the cap to ensure younger employees could continue to benefit from the enhancement.

As for the windfall argument, the tribunal noted that although this might constitute a legitimate aim, that was not the case here.  The scheme could produce a windfall in other ways and the company had not tried to tackle those anomalous situations but had instead focused all its attention on payments to those over the age of 65.

The company appealed, arguing that the use of the cap had to be judged against the broader context of the severance scheme as a whole. 

EAT decision

The EAT agreed with the tribunal that this was not a windfall case.  It took into account that Mr McDowell was intending to work until August 2016 and BAE had not provided any evidence that staff still tended to retire at 65 despite the abolition of the statutory default retirement age. 

However, the EAT held that the role of the tribunal was to critically assess whether the taper and the cap justified the legitimate aims of the scheme as a whole. There was no proper basis for it to separate out parts of the scheme and test them in isolation against each aim relied on by the employer. Instead it should have taken an holistic approach to the severance scheme. 

The EAT referred the case back to the tribunal to assess the legitimate aim.