On the defensive

The Employment Appeal Tribunal has delivered a key judgement on using the justification defence in age discrimination. Barristers from 11 KBW analyse the outcome

In Pulham v London Borough of Barking & Dagenham, the Employment Appeal Tribunal, chaired by Underhill P, has handed down an important judgment on the application of the justification defence available under regulation 3(1) of the Employment Equality (Age) Regulations 2006 (“the Age Regulations”) and, in particular, its application to payments made under a long service benefits scheme.

The judgment is important not least because it is the first appeal in which the EAT has considered how the justification defence under the Age Regulations operates in respect of pay protection arrangements. The EAT’s analysis of the application to such arrangements of the principles contained in the Court of Appeal’s judgment in Redcar & Cleveland BC v Bainbridge [2009] ICR 133 (“Bainbridge”) is particularly worthy of note.

Background

The long service benefits scheme which was in issue in Pulham had first been set up by the council in 1998. As originally constituted, it permitted employees to qualify for long service benefits provided that: (a) they had been in the council’s service for 25 years (“the long service criterion”) and (b) they had attained the age of 50 (“the age criterion”). Benefits became payable on the 1 April following the employee having met both criteria.

Having recognised in 2004 that the age criterion would become unlawful once the Age Regulations came into force on 1 October 2006, the council realised that it would have to move away from the scheme. This realisation ultimately led the council to abolish the scheme in its entirety on 1 April 2007.

However, importantly, the abolition of the scheme went hand in hand with a decision to pay protect all those employees who had already qualified for benefits by 1 April (i.e. they had 25 years’ service and had turned 50 prior to 1 April 2007). Following 1 April 2007, those employees would continue receiving payments, albeit frozen at the rates applicable as at 1 April 2007, until they left the council’s employment.

Ms Pulham was one of 16 long-serving employees who had been unable to qualify for benefits under the scheme. They had all failed to qualify because they were too young to meet the age criterion. All 16 employees brought claims against the council for age discrimination. Ms Pulham’s case was selected by the tribunal as a test case.

In essence, Ms Pulham’s case was that she had been unlawfully directly discriminated on grounds of age both in respect of the period 1 October 2006 – 30 March 2007 (“the first period”) and in respect of the period 1 April 2007 onwards (“the second period”).

In respect of the first period, Ms Pulham claimed that she had been unlawfully discriminated against on grounds of age because, during that period, the scheme had continued to operate unamended by the council. Her claim in respect of the second period was that she had been unlawfully discriminated against because, on grounds of age, she had been excluded from the class of employees who would effectively continue to receive benefits following abolition of the scheme.

The tribunal held that Ms Pulham had been subject to direct age discrimination for the purposes of regulation 3(1)(a) of the Age Regulations. However, it went on to accept the council’s argument that the discrimination was justified under regulation 3(1) of the Age Regulations. The EAT upheld an appeal against the tribunal’s decision. The EAT ordered that the case should be remitted to a differently constituted tribunal for a rehearing on the justification issue.

The following aspects of the EAT’s judgment are particularly worthy of note:

Application of Bainbridge

Ms Pulham’s case before the EAT was based in part on an argument that the tribunal had erred in concluding that the pay protection arrangements introduced on 1 April were justified having regard to the Court of Appeal’s judgment in Bainbridge.

More particularly, it was argued on behalf of Ms Pulham that, in light of Bainbridge, it was clear that those arrangements could not be justified given that they had the effect of perpetuating a form of direct age discrimination which the council had known for some time would become unlawful with effect from 1 October 2006 (i.e. when the Age Regulations came into force).

The EAT rejected that part of Ms Pulham’s case. It did so on the basis that that case did not in fact sit comfortably with the principles emerging from the Court of Appeal’s judgment in Bainbridge.

In Bainbridge, the Court of Appeal considered two cases brought under the Equal Pay Act 1970 (“EPA”): the Bainbridge case itself andMiddlesborough BC v Surtees [2007] ICR 1644. The issue in Bainbridge was whether certain local authority pay protection arrangements, which were tainted by sex discrimination, could nonetheless be justified under the EPA.

The EAT in Pulham reached the following conclusions on the principles emerging from the Bainbridge judgment:

• in Bainbridge, the Court of Appeal had drawn a distinction between: (a) those cases where the employer had knowledge prior to introducing the pay protection arrangements that the relevant scheme was itself unlawfully discriminatory and (b) those cases where the unlawful discrimination had only been recognised after the event (i.e. after the pay protection arrangements had been introduced);
• the Court of Appeal concluded that, whereas the pay protection arrangements in the former cases could never be justified, a more flexible approach should be adopted in respect of the latter cases, i.e. the continuation of such arrangements may be justifiable;
• applying that reasoning to Ms Pulham’s case, it could not be said that the pay protection arrangements relating to the long service benefits scheme were automatically incapable of being justified by the council. This was because, whilst the age condition had, since its inception, been directly age discriminatory and further whilst the council had long had knowledge of that fact, the discrimination itself did not become unlawfully discriminatory until after 1 October 2006. It followed that the introduction of pay protection arrangements would not automatically constitute a perpetuation of pre-existing unlawful discrimination.

As Underhill P put it:
”We can see no reason why an employer faced with the coming into force of the [Age] Regulations should be absolutely disentitled to incorporate an element of pay protection into the adjustments necessary to confirm to the new law, notwithstanding that that will of its nature involve a degree of continuing discrimination. Since all kinds of age discrimination can in principle be justified there is no reason to treat discrimination occurring in this particular way any differently. And it would be strange if employers in this situation were in a worse position than employers seeking to justify the continuation of part ‘unrecognised’ but unlawful sex discrimination.”

Reliance on union negotiations

However, the EAT went on to accept that the tribunal’s judgment was nonetheless fundamentally flawed for other reasons. In particular, it accepted that, in reaching the conclusion that the pay protection arrangements were justified, the tribunal had relied too heavily on the council’s assertions that the decision to offer pay protection had been the product of negotiation with the unions (this was “an essential element” of the tribunal’s judgment according to Underhill P).

The EAT held that the weight attached to this issue by the tribunal amounted to ‘a misdirection’ for two reasons.

First, the mere fact that a particular discriminatory measure may have been the product of negotiations between the employer and relevant unions does not per se mean that an employer can abdicate responsibility for itself carrying out the necessary proportionality exercise. This must be so not least because it could not be assumed that the negotiations had an eye to the interests of those who might be adversely affected by the introduction of the measure.

Second, there was in any event no satisfactory evidence before the tribunal that the council and the unions had given any consideration to the justifiability of excluding younger long-serving employees from the class of employees who would continue to receive payments. In the absence of such evidence: ‘“union negotiation” is a factor of little or no weight in deciding whether the outcome reached struck a proportionate balance between the council’s needs and the discriminatory impact on those employees.

Identifying the Legitimate Aim

The EAT found that there was a further difficulty with the tribunal’s judgment which emerged from the fact that the tribunal had failed to draw a clear distinction between the first period and the second period.

This was important because, so far as justification was concerned, different considerations came into play in respect of these two periods. Not least, whilst arguments relating to the need to afford pay protection to those already receiving the benefits came into play in respect of the second period, those arguments could not be prayed in aid in respect of the first period, during which time the scheme continued to operate as originally constituted. There had, in effect, been a failure by the tribunal to identify clearly the legitimate aim which was in issue in respect of the first period.

This article was written by barristers at 11 KBW (www.11kbw.com). John Cavanagh QC and Anya Proops of 11KBW, instructed by Deborah Alexander of Unison, represented the Appellants.
James Goudie QC and Tara Shahbahrami of 11KBW, instructed by William Ssempala, represented the Respondent.