UK: Enhanced redundancy pay - risk of age discrimination claims

Employers should carefully consider whether enhanced redundancy schemes paying more to older workers can be justified.

The ECJ has ruled that a Danish scheme for civil servants which excluded those aged 65 or over and therefore eligible for pension (but not required to retire until 70) was not objectively justified. The scheme provided three years' salary as "availability pay", partly to ensure the civil servants were available to be reassigned to another post and partly to protect them from external pressures by providing a replacement income. The ECJ ruled that the scheme was for legitimate aims but went further than necessary: it should have included those employees over 65 who temporarily waived their right to receive a pension in order to remain available for redeployment. (Dansk Jurist v Indenrigs, C-546/11).

The ruling may indicate a divergence from the ECJ's previous stance in compulsory retirement cases, where it has viewed the availability of pension as a relevant factor in justifying a particular compulsory retirement age.

However, its relevance may be limited to its particular facts. The payment was partly to ensure the employees remained available for redeployment. The ECJ considered that employees should not be deprived of the possibility of redeployment, thereby continuing their career from age 65 to 70 and potentially accruing a higher pension. Many redundancy schemes are focussed solely on providing a financial cushion until the employee can replace their salary; where this is the case, the availability of pension may be more determinative.

In contrast, the Court of Appeal has recently upheld a ruling that a UK civil service enhanced redundancy scheme which was more generous to employees aged 35 or over was lawful. The age discrimination was justified by a strong social policy objective of providing a financial cushion that reflected the extra problems older workers experienced after losing their jobs. The tribunal had not erred in accepting statistics showing that those aged 35 and over found it more difficult to find another job and had greater financial commitments. The Court of Appeal accepted the tribunal's point that inevitably a banding scheme of this nature will not achieve justice across the board and that it was not practicable to consider an individual employee's particular circumstances. (Lockwood v DWP)