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Cap on redundancy payments not age discrimination

12 July 2010

A cap on redundancy payments, which limited them to the amount an employee would have earned had he remained in the post until the age of 65, was not age discrimination, the EAT has ruled.

Richard Hastie worked for almost 40 years in coffee processing for Kraft foods before taking voluntary redundancy in 2008. The tribunal heard that this entitled him to a prima facie payment of £90,000.

Giving judgment in Kraft Foods UK v Hastie (UKEAT/0024/10/ZT), Mr Justice Underhill, president of the EAT, said that Hastie was made redundant just over two years from his 65th birthday.

He earned around £33,800 a year and could not have earned £90,000 before he reached the default retirement age. Underhill J said the cap operated to cut Hastie’s entitlement by £13,600.

Hastie argued that the cap amounted to age discrimination under the Employment Equality (Age) Regulations 2006.

Both parties accepted that the cap “disproportionately applied” to employees approaching their 65th birthday and constituted unlawful age discrimination unless it could be shown to be justified.

Underhill J said the essence of Kraft’s argument was that the cap was necessary in order to “prevent employees from receiving a windfall”.

He said the “unspoken premises” of the redundancy scheme were that its primary object was to compensate redundant employees for the loss of earnings which would have been entitled to receive had they remained and that, on reaching the age of 65, the employee would lose the legal right to remain in post.

The judge went on: “On the basis of those premises, it would go beyond the object of the scheme – and thus be a “windfall” – for an employee to receive a sum under it in excess of what he would have been entitled to receive had he continued to age 65.

“To take an extreme example by way of illustration, an employee on the same earnings as the claimant, and with his length of service, who was made redundant at age 64 and 11 months would receive £90,000 by way of compensation for the loss of the chance to earn some £3,000 in the remaining month of his employment.”

Underhill J said that redundancy payments reducing as the employee approached normal retirement age was a “standard feature of contractual redundancy schemes” and until recently a feature of the statutory scheme.

“That being so, it in our view also necessarily follows both that it is legitimate for a redundancy scheme to incorporate a provision designed to prevent such excess compensation and that the cap in the present case was a proportionate means of achieving that aim: indeed, it does so with precision, and arguably more accurately than by the application of a taper, which is the other means commonly employed.”

Underhill J said if the dismissal was “positively unfair”, the employee would be entitled to a compensatory award based on actual loss.

“But the fact that an assessment is carried out in those, different, circumstances does not undermine the proposition that the underlying purpose of a redundancy payments is also compensatory.”

The EAT’s allowed the appeal and dismissed Kraft’s claim.

Categorised in:

Financial services & Tax Discrimination Tribunals & Courts Local government