Harsh economic times often call for difficult business decisions. Sometimes these decisions will have a disparate impact on different sections of the workforce. Where a provision, criterion or practice ("PCP") planned by an employer impacts on a section made up of employees with the same protected characteristic, such as age, this can amount to indirect discrimination. That doesn't necessarily prevent the employer from lawfully carrying through their plan but the employer would need to show that the PCP they are applying is a proportionate means of achieving a legitimate aim - in other words it was "justified".
Justification of indirect discrimination requires more than simply a need to save money - case law shows that cost alone cannot amount to a legitimate aim and an attempt to defend a claim on that basis is doomed to fail. Instead, justification requires something more than cost alone - i.e. what has become known as the "costs plus" rule.
However, as businesses are facing the most challenging economic times seen for decades, the case of Heskett v Secretary of State for Justice possibly provides some light at the end of the tunnel for struggling businesses. Mr Heskett was employed as a probation officer by the National Offender Management Service ("NOMS"), an executive agency of the Ministry of Justice. In 2010, NOMS, as with much of the public sector, was affected by "austerity" and in particular the Treasury announcing a policy limiting pay increases.
NOMS response to this was to replace their pay progression policy. The old policy allowed for an officer to progress three points up the pay scale each year whereas the new policy allowed progression of only one pay point per year. The practical effect of this was that under the old policy it would take Mr Heskett 7 or 8 years to progress to the top of his pay band, but under the new policy it would take 23 years. Pension contributions would also be affected. Meanwhile, older employees who were already at or near the top of the pay band would earn significantly more than younger employees at the bottom of the scale.
Mr Heskett claimed to a tribunal that the new pay progression policy meant he and others under the age of 50 were at a significant disadvantage compared to those aged over 50. The tribunal found the policy was, on the face of it, indirectly discriminatory, but that it was justified. NOMS had argued that the change in policy not only saved costs by cutting pay, but also enabled it to "live within its means", and that was a legitimate aim. The policy was also a temporary measure and NOMS were considering how to minimise the discriminatory effect. The short term nature of the scheme was relevant to the tribunal's finding that the policy was proportionate. The EAT upheld this decision and Mr Heskett appealed to the Court of Appeal.
The argument before the Court of Appeal was that the employer's justification - based on "absence of means" - was really no more than costs alone, the original pay progression scheme being too expensive to maintain. It therefore did not meet the costs plus rule. While the Court agreed that the saving or avoidance of costs without more could not amount to a legitimate aim, it expressed concern about the "costs plus" label, suggesting it could lead to an "inappropriately mechanistic" approach. The Court drew a distinction between cases where the aim of the PCP was "cost cutting" and those where an "absence of means" forced the employer to apply the PCP (in this case the new pay progression scheme). On that basis NOMS need to observe the constraints imposed by the Treasury on staffing costs - the need to balance its books - did constitute a legitimate aim.
The Court also held that an employer may be able to justify measures as proportionate where they are a short-term means of responding to a problem, even if the same measures could not be justified in the longer term. The Court was satisfied that NOMS did intend within a reasonable time to discontinue or modify the measures that were having the discriminatory effect.
This case appears to make establishing a legitimate aim on the grounds of financial constraints a little easier than it has been to date. Arguably it seems to be little more than putting the cost savings into some sort of context - the need to "balance the books" - in order to meet the "costs plus" rule. However, while that may seem to open the door to employers being more able to evidence a legitimate aim, there still remains the need to show the PCP was a proportionate means of achieving that aim. The short term nature of the measures in this case were pivotal to the conclusion that they were proportionate. However, the Court was clear that it was not open to an employer to defend a discriminatory state of affairs simply by saying "I know I am discriminating but I will do something about it soon". It is also of note that the Court commented that NOMS' time for addressing the problem was coming close to running out.
