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The EAT (Lewis J presiding) gave judgment on 5 February 2015 in this case, holding that:
(i) Dismissal and re-engagement in order to harmonise disparate terms and conditions inherited from historic TUPE transfers can constitute a ‘provision, criterion or practice’ (PCP) for the purposes of an indirect discrimination claim under section 19 of the Equality Act 2010, even if the new terms and conditions do not of themselves place any group at a particular disadvantage;
(ii) However, the employment tribunal was entitled to find that the changes in this case were justified in order to meet the employer’s legitimate aim of reducing staff costs to ensure its future viability and to have in place market competitive, non-discriminatory terms and conditions;
(iii) In particular, it is as a minimum legitimate for an employer to seek to break even year-on-year and for a business to make decisions about the allocation of resources, and alternatives suggested by the claimants which would have delayed or reduced the savings would not have met that legitimate aim and so did not undermine the employer’s justification.
The successful employer was represented by Ben Cooper, instructed by Sarah Peacock of Blake Morgan LLP
The employer (HCL) is an out-sourcing company which provides services to life insurance and pensions businesses relating to the administration of ‘closed book’ policies, that is those which are no longer sold but where there are existing policies in respect of which premiums continue to be paid which therefore require administration. HCL is part of an international group and its parent company is highly profitable.
Over a period of years, a series of TUPE transfers occurred, as HCL took over the administration of policies from or on behalf of a variety of other companies. This resulted in HCL employing different groups of employees with significant variations in their terms and conditions.
A combination of the economic downturn in 2009, difficulty securing new business and pressure from its customers to reduce its services charges meant that, by 2010, HCL was making substantial losses. It identified an urgent need to reduce staff costs by between £1 million and £2 million.
A review of employees’ terms and conditions was carried out and those terms were benchmarked against industry data. As a result of that review, HCL concluded that the terms of various groups of employees’ were more generous than industry standard levels and that significant savings could be made by reducing those terms. In addition, HCL identified various terms for certain groups that were potentially indirectly discriminatory in favour of older employees because they included service related benefits and/or historic benefits now only available to longer-serving employees.
HCL decided not to make any reductions in basic salary but identified a range of terms to be changed by introducing a new set of harmonised terms and conditions. Those terms included holidays, hours of work, enhanced redundancy entitlement and sick pay.
HCL engaged in a full consultation and then implemented the changes by issuing notices of dismissal to all employees, together with offers of re-engagement on new terms and conditions. A substantial majority of the employees accepted the new terms, but others did not and left HCL’s employment.
The claimants claimed for unfair dismissal, automatic unfair dismissal under TUPE and indirect age discrimination.
Employment tribunal decision and appeal
The employment tribunal dismissed the claimants’ claims for unfair dismissal and automatic unfair dismissal and there was no appeal against those conclusions.
In respect of the indirect age discrimination claims, the Tribunal found that:
(i) HCL had applied a PCP to the effect that, in order to remain in employment, employees had to agree to the new terms and conditions;
(ii) That PCP placed them and older employees generally at a particular disadvantage because older employees were disproportionately more likely to be losing valuable benefits;
(iii) However, in introducing the changes, HCL had a legitimate aim, namely to reduce staff costs to ensure its future financial viability and to have in place market competitive, non-discriminatory terms and conditions; and
(iv) The means used were proportionate to that aim balancing the real needs of HCL against the discriminatory effect of the changes.
The claimants appealed, arguing that the tribunal had failed properly to engage in the necessary critical evaluation required in order to determine the issue of justification and, in particular, had failed adequately to consider various alternative solutions proposed by the claimants and whether HCL’s parent company, with its large profits, could have provided greater financial support.
HCL cross-appealed the finding that the change to new terms could constitute a relevant PCP where those new terms themselves did not place any age group at a particular disadvantage, but the appearance of disadvantage was only created by looking from one side of the change date to the other. Reliance was placed on ABN Amro Management Services Ltd & The Royal Bank of Scotland v Hogben UKEAT/0266/09/DM in support of the cross-appeal.
Dismissing the appeal and the cross-appeal:
(1) ABN Amro could be distinguished on the basis that, in that case, the claimant was seeking to compare himself with a wholly different group of employees to whom a different PCP had been applied at a different point in time;
(2) In the present case, applying the language of section 19 of the Equality Act 2010, there was a valid PCP, namely the requirement to agree new terms, which placed older employees at a particular disadvantage because they were disproportionately giving up contractual benefits which younger employees were less likely to have in the first place;
(3) In order to ascertain whether the Tribunal had properly understood and applied the correct test for justification, it was necessary to read its decision fairly and as a whole;
(4) The Tribunal had cited the correct passages from the relevant authorities, which was a very strong indication that it had properly understood the approach it had to take;
(5) The Tribunal’s findings of fact and reasoning in relation to the unfair dismissal claims indicated that it had in mind the factors relevant to both the importance of the employer’s aims and the disadvantage to the claimants;
(6) The Tribunal said in terms that it had balanced the needs of the employer against the discriminatory effect of the changes and, whilst it might have been preferable to set out the balance in more detail in the section on justification or to refer back to its earlier findings, on a fair reading the Tribunal did have a real appreciation of the impact of the changes on the employees and the real needs of the employer, and balance those needs;
(7) With regard to the alternatives proposed by the claimants and the suggestion that the parent company could have provided more financial support, all those options would have involved delaying or reducing the savings to be made. It is as a minimum legitimate for an employer to seek to break even year-on-year and for a business to make decisions about the allocation of resources. Therefore, the alternatives suggested by the claimants, by delaying or reducing the savings, would not have met HCL’s legitimate aim and so did not undermine its justification and the Tribunal had been right so to find.
On the issue of justification, this case reiterates well-established principles and emphasises that alternatives which would involve modifying the employer’s aim rather than meeting it will not undermine the justification. Those findings reinforce propositions already established in HM Land Registry v Benson  ICR 627, EAT, para 34 per Underhill P.
On the PCP issue, the case perhaps has wider implications, as authority for the proposition that a change in terms and conditions may constitute a PCP even where the new substantive terms do not of themselves place any group at a particular disadvantage. Consider the following scenarios:
These questions remain to be considered should they arise in future cases.
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