Justifying discrimination: “cost plus”?


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The question of whether financial cost alone is sufficient to justify age discrimination and, by implication, other forms of discrimination, was addressed recently by the Court of Appeal (CA) in the case of Woodcock v Cumbria PCT.

Facts

Mr Woodcock was employed as a Chief Executive by Cumbria PCT. His contract contained a one year notice period. Following an NHS reorganisation and a redundancy process during which Mr Woodcock applied unsuccessfully for a new Chief Executive role, Mr Woodcock was placed at risk of redundancy in mid-2006, aged 48. The Trust did not give Mr Woodcock notice at that time. Instead, Mr Woodcock was assigned a temporary role with a view to him making a renewed application for a Chief Executive role the following year. By mid-2007, however, the Trust decided that Mr Woodcock’s employment should be terminated after all. The Trust also realised that, if notice was not given in time to expire prior to Mr Woodcock’s 50th birthday, Mr Woodcock would be entitled to claim early retirement on enhanced terms at an estimated cost to the Trust of £500,000. Mr Woodcock was, therefore, given notice of termination prior to the redundancy consultation meeting that had been scheduled so as to ensure that it would expire before his 50th birthday.

Mr Woodcock brought an unfair dismissal claim (which he won, due to shortcomings in the procedure preceding his dismissal) and a claim for direct age discrimination, on the basis that, had notice been given to a younger employee, it would have been preceded by consultation that he, in contrast, had been denied.

Cost plus”?

Age discrimination is unique, in that both direct and indirect discrimination are capable of justification. With all other forms of discrimination, only indirect discrimination can be justified. However, to rely on the defence of justification, employers must be able to show that the otherwise discriminatory treatment in question was “a proportionate means of achieving a legitimate aim”.

One of the central issues in the Woodcock case was whether the saving of financial cost alone can be a “legitimate aim”. Employers have been hoping for a relaxation of the orthodox “cost plus” approach to justification, mandated by the EAT in 2005 in Cross v British Airways plc, pursuant to which the avoidance of increased cost alone has not been regarded as a legitimate aim.

In this case, the CA upheld the “cost plus” approach and held that an employer cannot justify discrimination “solely” on the basis that not to discriminate would entail increased financial cost. However, it only did so by concluding that Mr Woodcock’s otherwise discriminatory treatment was not only aimed at saving costs: the Trust’s legitimate aim was to terminate Mr Woodcock’s employment by reason of redundancy. It was an acceptable part of that aim for his employment to be terminated in time to avoid him receiving the pension windfall. The CA therefore viewed this as a “cost plus” situation.

As to proportionality, the CA considered that the giving of notice of termination of employment ahead of the consultation meeting was proportionate. The Trust could have given notice much earlier than it did, or have given it after a consultation meeting that had been proposed but never took place, but still in time to expire before Mr Woodcock’s 50th birthday, thereby legitimately depriving him of the enhanced pension payout. In addition, since the redundancy consultation would not have changed the result of the redundancy process for Mr Woodcock, the effect of the discriminatory treatment on him was minimal, particularly when viewed against the substantial cost savings to the Trust.

Comment

While endorsing the “cost plus” approach to justification, the CA did not provide the hoped-for clarification of its scope. The CA recognised that most decisions made by employers will involve cost considerations. Based on its decision in this case, it may be that discriminatory treatment that is principally, but not entirely, driven by financial cost is more likely to be capable of justification.

Legal commentators’ reaction to the CA’s ruling in Woodcock has been mixed. Some consider that it opens the door to discriminatory treatment on the basis that it now appears easier to argue that it will be cheaper not to discriminate than to discriminate. Others, however, are more cautious, noting that, on the particular facts of this case – in particular the fact that Mr Woodcock could quite justifiably have been dismissed much earlier than he was – the CA was more willing to find the “plus” element of the “cost plus” approach than it might otherwise have been.

The CA’s approach in this case contrasts with the EAT’s approach last year in the case of Cordell v Foreign & Commonwealth Office (FCO), a case concerning reasonable adjustments in the context of the Disability Discrimination Act 1995 (DDA). Under that Act, employers were under a legal obligation to make reasonable adjustments to any “provision, criterion or practice”, or any physical feature of the workplace, that substantially disadvantaged a disabled employee in order to eliminate the disadvantage. In Cordell, the FCO argued that the annual cost of £250,000 of providing lipspeaker support for a deaf senior diplomat was so high that the adjustment could not be regarded as reasonable. The EAT agreed, commenting that the law does not compel employers to compensate employees for their misfortune “at whatever cost”. As the Equality Act 2010 contains similar rules on reasonable adjustments, the DDA case law on this issue remains relevant.

In circumstances where there is an undeniably high financial cost associated with employing a disabled individual, employers may, on the basis of Cordell and depending on the facts, be able to defend their failure to make a reasonable adjustment on the basis of cost alone. However, following Woodcock, an employer will not be able to defend a claim for disability-related discrimination on the same basis. This is arguably illogical. Looking forward, then, courts are likely to continue to be creative in order to identify a “plus” element of the “cost plus” equation – and the issue of cost is bound to remain a key battleground in disputes involving potentially discriminatory treatment.

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