'Costs plus' approach to justifying discrimination in the UK endorsed by the Court of Appeal

The Court of Appeal in Woodcock v North Cumbria Primary Care Trust has ruled that the savings of costs alone will not, without more, amount to a legitimate aim so as to justify discrimination. In this case, Mr Woodcock was dismissed by reason of redundancy just before his 50th birthday in order to avoid his qualifying for significant enhanced early retirement terms. The Court of Appeal (CA) held that this treatment amounted to discrimination by reason of age but was justified since the legitimate aim of dismissing him was to give effect to his redundancy and to save costs. The aim of the dismissal at that particular age was not purely to save costs and so was justifiable.

What happened in this case?

As set out in more detail in our previous blog regarding the findings of the Employment Appeal Tribunal (EAT) in this case, the Trust dismissed Mr Woodcock by reason of redundancy. However, the Trust did not carry out a full consultation process so that the 12-month notice of dismissal could be given so as to expire before Mr Woodcock’s 50th birthday (thus avoiding significant enhanced early retirement terms at a huge cost to the Trust).

Mr Woodcock claimed that this treatment constituted unjustified age discrimination. The Tribunal found (and the EAT and the CA agreed) that such treatment was, on the face of it, discriminatory on the grounds of age, and so the central question was whether the Trust’s actions were objectively justified, i.e. whether they were a ‘proportionate means of achieving a legitimate aim’.

Decisions of the Employment Tribunal and the EAT

The Tribunal found that the aim of the Trust in terminating Mr Woodcock’s employment was not of itself to save costs, but was to achieve the dismissal of a redundant employee. Part (not all) of this aim was to achieve this in a cost-effective manner. The EAT agreed that this satisfied the costs plus approach as set out in Cross v British Airways, and so ultimately found that the treatment was justified. 

However, the EAT also raised concerns about the artificiality of such an approach, noting the strange situation where employers would be playing games of ‘find the other factor’, in order to be confident that certain actions could be justified.

This EAT decision therefore arguably left employers in quite a difficult situation – on the one hand the EAT was formally following the costs plus approach, yet at the same time (as an aside) was experiencing misgivings as to the desirability and logic of such an approach. Further EAT decisions did not provide the clarity that employers were looking for either: for example, the case of Cordell (discussed here in our previous blog) did seem to indicate that cost alone might be sufficient, but also seemingly gave the Tribunals wide discretion to decide what will be ‘right and just’. This is why the Court of Appeal judgment in Woodcock was so keenly anticipated.

The Court of Appeal decision

The CA considered the line of authorities both in the UK and European Court, and concluded that the real question must always boil down to whether the treatment amounted to a ‘proportional means of achieving a legitimate aim’. 

The Court agreed with the guidance of the European Court and held that the saving or avoidance of costs will not, without more, amount to the achieving of a legitimate aim. On the facts in question, the CA found that the aim of the treatment was not cost alone; it agreed with the Tribunal and EAT that the (legitimate) aim of dismissing Mr Woodcock before his 49th birthday was genuinely to give effect to the redundancy decision, and a legitimate part of that aim was to save the Trust significant costs.

What does this mean for employers?

The ‘costs plus’ approach to justifying discrimination means that costs alone will not justify discrimination, but costs plus another factor may do so. The EAT in Woodcock, back in November 2010, cast doubt on this ‘costs plus’ approach. As explained above, the EAT did not go so far as to depart completely from such an approach, however, and found on the facts that the treatment of Mr Woodcock by the Trust was in fact justified on grounds other than cost. 

When Mr Woodcock appealed the EAT’s decision to the CA, employers eagerly awaited an answer to the question: would this judgment spell the end for the ‘artificial game playing’ that was inherent in the ‘cost plus’ approach?

Unfortunately for employers, the answer is no. The CA, although in agreement with the Employment Tribunal and the EAT that any discrimination in this case could, on the facts, be objectively justified, it did not hold that cost alone would be sufficient to justify discrimination. 

On the bright side, employers can take comfort that we now have clear guidance on the issue of costs plus – even if it is not the guidance they were hoping for! For now (and this case does not look set to be appealed further) the costs plus approach remains, and employers should be careful before taking any discriminatory action for which their only justification is cost. 

For the time being at least, the ‘artificial game playing’ of ‘find the other factor’ looks set to continue. How easy this might be will depend on the facts of each particular case. Take the example of ceasing to provide certain benefits at a particular age: while the most obvious (and no doubt the genuine) aim would be to save costs, this would not be sufficient on its own to constitute a legitimate aim. Employers would be advised to ‘find the other factor’, and so might seek to argue that the legitimate aim is in fact, for example, avoiding redundancies or liquidation of the company which might otherwise be required. The current judgment of the Court of Appeal unfortunately provides little guidance on whether such arguments would succeed, or whether Tribunals will see such arguments as merely a matter of semantics, but until such guidance is provided employers have little alternative but to play such ‘games’.  

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