On benefits
Two recent cases have muddied the waters when it comes to dismissing an individual in a manner that could deprive them of age-related benefits. Elizabeth Stevens says local authorities should tread warily.
Many employers are already aware of the risks of terminating an individual’s employment close to his or her retirement age. A finding of unfair dismissal can result in a high award of compensation for financial loss (including pension loss) and there is the added risk of a claim for age discrimination, with no upper limit to the potential award in the event the claim is successful.
A recent decision of the Employment Appeal Tribunal (EAT) in the case of London Borough of Tower Hamlets v Wooster UKEAT/0441/08 has highlighted the risk of dismissing an individual in circumstances which deprived him of qualifying for enhanced early retirement benefits.
Facts
Mr Wooster was originally employed in the housing department of the London Borough of Tower Hamlets. Following a restructuring exercise in 2001, he was seconded to East End Homes (EEH), a registered social landlord.
The secondment was due to end in 2006 and Mr Wooster was warned that he would be made redundant, unless alternative employment could be found for him. EEH offered to fund his continued employment until he reached the age of 50 in 2007, when he would qualify for early retirement benefits under the local government pension scheme. This offer was rejected by Tower Hamlets and Mr Wooster was encouraged to apply for voluntary redundancy.
Following his dismissal, Mr Wooster brought claims for unfair dismissal and age discrimination, both of which were upheld by an employment tribunal. Tower Hamlets appealed against the tribunal’s decision upholding the claim for age discrimination and the decision on remedy.
The appeal
The EAT dismissed Tower Hamlets’ appeal against the finding of age discrimination. It held that the tribunal was entitled to find that the council’s failure to redeploy Mr Wooster or extend his employment was motivated by a desire to terminate his employment before he became entitled to an early pension.
The EAT accepted that it would have been ultra vires for Tower Hamlets to agree to an extension of his employment purely in order to reach the age of 50 and qualify for early retirement. Employers are not under any obligation to postpone an individual’s dismissal to enable them to qualify for an age-related benefit.
However, the actions of Tower Hamlets in failing to make sufficient efforts to redeploy Mr Wooster in accordance with their redundancy and redeployment policy, together with evidence that the council was expressly seeking to avoid paying the early pension, meant that his dismissal amounted to unlawful age discrimination.
The EAT rejected the council’s argument that a decision motivated by a desire to avoid the cost of paying early pension benefits was not a decision based on the grounds of age and therefore could not amount to age discrimination. On the contrary, it held that pension entitlements are inherently dependent on an individual reaching a particular age and therefore a decision made on this basis was inevitably made on the grounds of age.
The EAT pointed out that less favourable treatment of an employee because he or she has reached pensionable age did not necessarily mean that such treatment amounted to unlawful age discrimination; such treatment might be capable of justification. However, the council had not pursued any arguments for justification before the tribunal.
The EAT also dismissed the council’s appeal against the tribunal’s decision on remedy.
Conclusion
This case suggests that in some circumstances, a discriminatory dismissal in order to deprive an individual from age-related benefits might be capable of justification. However, it remains unclear exactly what circumstances would constitute a “legitimate aim”, necessary to establish justification for the purposes of discrimination law. Certainly previous case law has suggested that cost-based considerations alone cannot form the basis for justifying discrimination.
Interestingly, this case was shortly followed by a decision of an employment tribunal in the case of Woodcock v Cumbria Primary Care Trust which appears to have reached the opposite conclusion on very similar facts.
The tribunal in Woodcock held that the claimant, a former chief executive of a PCT, had not been discriminated against on the grounds of his age when he was dismissed for redundancy in circumstances which deprived him from enhanced pension benefits.
The tribunal accepted that notice of termination was given before proper consultation had been carried out in order to ensure the claimant’s dismissal took effect before his 50th birthday. This amounted to less favourable treatment on the grounds of his age, but the tribunal held that the less favourable treatment was justified as a proportionate means of achieving a legitimate aim.
The tribunal’s judgment is somewhat unclear on the issue of justification, but it appears to hinge on the avoidance of incurring significant additional costs to the employer (payable ultimately by the taxpayer). The claimant had been aware of the redundancy situation for ten months and had made it clear he was seeking a chief executive post, of which none were available. The tribunal was satisfied that further consultation would have made no difference to the outcome.
Both of these cases are now the subject of appeals, Wooster to the Court of Appeal and Woodcock to the EAT. We are unlikely to have any further clarification of this issue until the middle of next year. In the meantime, employers should exercise caution in dismissing employees in circumstances where it can be argued that the manner of the dismissal operated to deprive the individual of age-related benefits.
Elizabeth Stevens is a professional support lawyer at Steeles Law.
