OVER THE HILL AT 60

Loxley v BAE Land Systems Ltd

As in MacCulloch, the Employment Appeal Tribunal (EAT) in Loxley v BAE Land Systems Ltd (IDS 860) had to decide whether the employer could justify a redundancy scheme based on age and length of service. It said that (potentially at least) employers could justify excluding employees from redundancy payments if they were also entitled to a pension.

Basic facts

The company’s contractual redundancy scheme excluded employees over 60. It also reduced the amount of redundancy pay for every month of service for employees between 57 and 60.

Staff over 60 were excluded because, until 1996, they had been entitled to retire on a full pension. If they had also have been entitled to the redundancy payment, they would, according to the company, have received a windfall.

In 1996, the compulsory retirement age was increased to 65 and in April 2006, after extensive consultation with the unions, it was agreed that the pension age should also be raised to 65, but with no increase to the tapering provisions. Although employees could still take a pension at the age of 60, the rate was reduced by 4 per cent per annum.

Mr Loxley volunteered for redundancy in November 2006 when he was 61 and claimed age discrimination because he was only entitled to statutory redundancy and notice pay. The company argued that the age restrictions were justified because they were a proportionate means of achieving a legitimate aim.

Tribunal decision

The tribunal found against Mr Loxley, saying that the aim of the scheme (to prevent employees close to retirement age from receiving a windfall) was legitimate.

As for the question of “proportionality” it said that the scheme which finally emerged after consultation with the unions “struck a careful balance between employee and employer since some of the other models over-compensated employees with a resulting excessive financial burden” on the company. This outcome would therefore have defeated the company’s legitimate aim.

EAT decision

But the EAT disagreed. It said that the tribunal had incorrectly focused on changes to the pension entitlement rather than the redundancy scheme when coming to its decision, and so had not adequately addressed the issue of justification.

In its view, employers could (at least potentially) justify excluding employees from redundancy payments if they were also entitled to a pension, but that ultimately, each scheme would have to be assessed on its own merits.

It was not inevitable, therefore, that employers would be able to justify such schemes, but “there can surely be no doubt that the fact that an employee is entitled to immediate pension benefits will always be a highly relevant factor which an employer can properly consider when determining what redundancy rights, if any, the employee ought to receive. No doubt in some, perhaps many, cases it will justify excluding such an employee from the redundancy scheme altogether.”

In order to decide whether such a scheme could be justified, the EAT said that tribunals have to ask whether “the treatment of the claimant - in this case his exclusion from the scheme - achieves a legitimate objective and is proportional to any disadvantage which he suffers. It may be that his pension entitlement, even if taken earlier than he would otherwise have wished, is far more valuable than any redundancy entitlement”.

Although the tribunal in this case had had a lot of financial information about the various benefits before it, it had failed to analyse the information as part of its judgment and the EAT therefore remitted the case to a fresh tribunal.