Redundancy Payment Cap and Age Discrimination

In the recent Employment Appeal Tribunal (EAT) decision of Kraft Foods v Hastie, it was found that a cap placed on enhanced redundancy scheme payments does not constitute indirect age discrimination if the employer can show that it was a proportionate means of delivering a legitimate aim.

Mr Hastie had worked for Kraft Foods for nearly 40 years. During 2008, he volunteered for redundancy. The company had in place a generous redundancy scheme which offered 3½ weeks pay for each year of service. This would have meant, based upon length of service, that the he would have been entitled to a redundancy payment of over £90,000. As this would have been more than he would have earned had he remained in employment until the statutory retirement age of 65, under the scheme his entitlement was capped at £76,560.

He brought a claim contending that the cap amounted to indirect discrimination on the grounds of his age, since employees like him who were close to the retirement age would lose out on the benefits of such a scheme. The Employment Tribunal agreed with him. Kraft Foods appealed. They claimed that the cap was necessary to prevent employees from obtaining a “windfall payment”.

The EAT found that the purpose of any redundancy scheme is to compensate the redundant employee for the loss of earnings it would have been entitled to had they remained in employment. It would therefore be unjust if an employee could be awarded a sum that exceeded what he would have earned had he remained in employment to the age of 65. The EAT therefore found that the cap was a legitimate way to prevent employees from receiving a windfall and justified the indirect discrimination. The EAT came to this conclusion by focusing on a single issue: was the indirect discrimination resulting from the cap a proportionate means of achieving a legitimate aim. In other words, could the employer justify its otherwise discriminatory behaviour?

This case shows that a claim of indirect age discrimination will fail if an employer can show that what they did was justified. However, the onus will still be on the employer to show that it has implemented a proportionate means of achieving a legitimate aim. When considering the terms of a redundancy scheme, employers will therefore have to consider whether the way in which that scheme is implemented will directly or indirectly fall foul of anti-discrimination legislation.

For further advice on drafting and implementing redundancy procedures, as well as advice on all areas of contentious and non-contentious employment law, please contact Janet Long at