Age discrimination in changing terms & conditions

Could imposed changes to terms and conditions amount to age discrimination if older workers employed on more generous terms are particularly adversely affected? Sarah Peacock, who successfully represented the employer in a recent case in the Employment Appeal Tribunal, considers the issues.

With the economic downturn, many employers have had to consider cutting costs to ensure a business’ continued viability. Cutting staff costs through changes to terms and conditions is one solution, but needs to be handled very carefully. HR and Payroll are normally concerned to ensure that changes to terms and conditions will not result in unfair/constructive dismissals, but what about age discrimination? This recent case is one example of such a claim, and how it can be successfully defended given the right advice at an early stage.

Need to cut staff costs

HCL Insurance BPO Services Ltd (‘HCL’) is an outsourcing company providing services to life insurance and pensions businesses. Through taking over administration of insurance policies, it had acquired a number of staff in TUPE transfers (the Transfer of Undertakings (Protection of Employment) Regulations 2006). It had many employees on different terms and conditions.

With the difficult economic climate, HCL identified an urgent need to reduce staff costs. A review revealed that many employment terms were more generous than industry standards and significant savings could be made. Moreover, some terms were more favourable to older workers because of service-related and/or historic benefits only available to longer-serving employees, and were therefore potentially discriminatory against younger employees.

HCL decided not to reduce basic salary, or offer voluntary redundancy (it needed to retain skilled staff), but instead to harmonise terms and conditions for all employees, including holidays, hours of work, enhanced redundancy entitlement and sick pay. It therefore consulted extensively with all staff, and subsequently issued notices of dismissal, offering re-engagement on new terms.

The majority of employees accepted the new terms. However, a number of them, including some who had actually accepted the new terms, brought claims for automatically unfair dismissal (connected with the TUPE transfers) and indirect age discrimination. The age discrimination claims were based on the argument that a ‘provision, criterion, or practice’ (PCP) was applied to all employees (ie. that they had to agree to new terms and conditions to remain employed) but put older employees at a particular disadvantage. Older workers were more likely to be losing valuable benefits.

Age discrimination justified

The Employment Tribunal (ET) found that in view of the consultation with employees and the options available to HCL, the dismissals were fair, but accepted that there was a ‘PCP’ which put older employees at a particular disadvantage. There was on the face of it, therefore, indirect age discrimination. However it found that any discrimination was objectively justified because:

• HCL had a legitimate aim in reducing staff costs, namely to ensure its future viability and have market-competitive, non-discriminatory terms and conditions, and
• The means it used were proportionate (balancing the needs of HCL against the discriminatory impact of the changes) and reasonably necessary to achieve the aim.

The claimants appealed to the Employment Appeal Tribunal (EAT) on the question of age discrimination, but the EAT upheld the ET’s decision. The EAT accepted that there could be a PCP through a change to terms and conditions, even if the new terms themselves did not disadvantage any particular group. However the EAT agreed that, in the circumstances, indirect discrimination was justified, coming to the same conclusion as the ET.

Lessons for employers

Employers facing difficult times should note this decision. Whilst employers can successfully make changes to staff terms and conditions and improve profitability, they must be aware of potential claims. These could include discrimination claims, as well as unfair dismissal (for dismissal and re-engagement) or constructive dismissal (resignations in response to imposed changes).

In this case the EAT made some helpful comments for employers. It noted that “as a minimum” it was a legitimate aim for a business to seek to break even year-on-year and to make decisions about the allocation of resources. HCL was making an annual loss of £4 million and staff costs were running at 115% of revenue. The EAT accepted that alternatives suggested by the claimants, which would have delayed or reduced the savings, would not have met HCL’s legitimate aim and there was no other practical or reasonable way of achieving it.

Considering all the alternatives early on, properly consulting on them, and providing detailed evidence will place employers in a strong position if they ever face an ET claim.

Key points:

• Employers needing to consider cutting staff costs can achieve changes to terms and conditions by dismissing and re-engaging through careful consultation with employees;
• However, employers must also be aware of potential indirect discrimination claims by groups of employees (for example older workers) adversely impacted by the changes;
• By taking legal advice on the options and consultation process at an early stage, potential claims can be anticipated and avoided, or if necessary, defended.

This article first appeared in Payroll World magazine.