Redundancy pay and age discrimination

It is not age discrimination to provide an enhanced redundancy payment scheme, as long as it mirrors the statutory scheme for redundancy pay.

A redundancy scheme will not be age discriminatory if it amends the statutory scheme in any of the following ways:

• by exceeding (or removing altogether) the statutory cap on a week’s pay;

• by multiplying the amount for each age band; or

• by multiplying the total amount by a figure of more than one.

(Paragraph 13: Schedule 9 EA 10)

An employer is free to devise its own redundancy scheme not based on the statutory scheme, but the employer must be able to justify it objectively as a proportionate means of achieving a legitimate aim if challenged as age discriminatory.

In Lockwood v Department of Work and Pensions [2013] EWCA Civ 1195, the Court of Appeal confirmed that the civil service voluntary severance scheme, which paid older leavers more than younger leavers, was not unlawful direct age discrimination on grounds of age. It was legitimate for the tribunal to take into account statistical evidence that it would be harder for the older workers to find new work and that they were more likely than their younger colleagues to have family and other financial commitments.

Given the limited pot of money available, the DWP’s policy of paying more to the older workers could be objectively justified as a proportionate means of achieving a legitimate aim. The size of the civil service as well as the need for clear rules and transparency enabled it to justify its use of “age banding”, rather than taking individual circumstances into account, as a proportionate response.

Several other recent test cases have also considered civil service redundancy compensation arrangements. In Heron v Sefton Metropolitan Borough Council UKEAT/0566/12/SM, the EAT ruled that the Civil Service Compensation Scheme (CSCS) discriminated unlawfully on grounds of age by capping the payments to employees made redundant aged over 60. In Heron, the claimant was aged over 60 when she was made compulsorily redundant. Her younger colleagues received payments based on their full service, whereas her payment was capped at six months’ pay. The council’s suggestion that the practice could be justified on the basis that employees aged over 60 had less need of a lump sum because they would be more likely to have access to a pension was dismissed by the EAT. Proper statistical evidence, accounting for both national and local conditions, would be needed to even begin to make this argument, said the EAT. Other similar test cases making their way through the tribunal system are Smith v Department for Business and Skills UKEAT/0308/12/RN and Budgen v Ministry of Justice UKEAT/0309/12/RN.

A policy that pays the same to everyone, for example, a scheme paying a month’s pay per year of service to every employee regardless of age, will not need justification, as there will be no age discrimination.