England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand. London. WC2A 2LL
		17th October 2008

Preliminary

1. The parties have invited this court to determine the answer to the following questions:

(i) Is the retention of length of service as a criterion within a selection matrix for redundancy, as contained within the collective agreements relating to the Claimant's Derby and Hucknall sites, a proportionate means of achieving a legitimate aim within Regulation 3(1) of the Employment Equality (Age) Regulations 2006?

(ii) Can the service related selection criterion properly be classified as a "benefit" within Regulation 32(1) of those Regulations? If so, does the service related selection criterion "fulfil a business need of [the Claimant's] undertaking" within Regulation 32(2) of the Regulations?

2. It will be immediately apparent that the questions which relate to achievement or fulfilment of legitimate aims or business needs are ones which, in the employment context, would normally and desirably be determined by 'an industrial jury' namely an Employment Tribunal or The Employment Appeal Tribunal. I sit as a single Judge without the benefit of the advice and wisdom which the lay Members of those Tribunals bring to questions of the sort being asked. Despite my misgivings, at the request of both counsel, I was pressed to proceed to a determination under Part 8 of the CPR. There are no issues of fact to be determined; there has been no oral evidence. I have been provided with witness statements on behalf of both parties which, essentially, set the scene for the resolution of their disputes. With considerable misgivings, I acceded to the request of both parties.
3. One curiosity that arises from the parties' positions is that the employers, Rolls Royce, contend that the length of service criterion in their Collective Agreements is unlawful age discrimination which cannot be justified, whereas the Union, Unite, contend that the criterion is lawful. One might have expected the arguments to be the other way round.

The background

4. I start with the Collective Agreements

(i) There are two collective agreements, relating to redundancy, entered into between the employers and Trade Union: one for staff and the other for works employees at the Derby and Hucknall factories. It is only necessary for present purposes to consider one [that for Staff], because they are essentially the same, and they raise the same issues.

(ii) The Agreement defines its subject matter as Redeployment and Redundancy. It provides for an Assessment Matrix which the Agreement records

"has been designed to ensure that the selection process is fair in general terms and fair to the individual."

Appendix 1 to the Agreement sets out the framework for Manpower Reduction. It recites that

"The Company and its employees need to be able to restructure flexibly and peaceably".

The Union records its opposition to compulsory redundancy but recognises that there may be circumstances which require a framework "to enable peaceable restructuring, and fair selection of affected employees without disruption to the Business."

(iii) The Notes for Guidance of the Redundancy Matrix show that assessors were to carry out assessments for the purpose of the selection process. There are five measured criteria: Achievement of Objectives, Self Motivation, Expertise/Knowledge, Versatility/Application of Knowledge and Wider personal Contribution to Team. An individual could score between 4 and 24 points under each head. As part of the process, each employee was to receive one point per year of continuous service. If the individual had unauthorised absences, then, on a sliding scale, those absences produced negative points which were deducted from the employee's total. Those with the least points were selected for redundancy.

The Statutory Framework

5. On 20 November 2000 the Council of the European Union adopted Directive 2000/78/EC. Article 2(2) outlaws direct and indirect discrimination on grounds of age. Article 6, headed "Justification of differences of treatment on grounds of age" permits Member States to provide that differences of treatment on grounds of age shall not constitute discrimination if they are objectively and reasonably justified by a legitimate aim, including legitimate employment policy, labour market and vocational training objectives, and if the means of achieving that aim are appropriate and necessary. This Article goes on to give examples of what differences of treatment may include [therefore the list is obviously not intended to be exhaustive or exclusive] "the fixing of minimum conditions of age, professional experience or seniority in service for access to employment or to certain advantages linked to employment". En passant, I note that justification is a defence to both direct and indirect discrimination.
6. In response to this Directive, the UK Government introduced into law the Employment Equality (Age) Regulations 2006. There are only a very few parts of the Regulations that are relevant to this case. Regulation 3 provides:

"(1) For the purposes of these Regulations, a person ("A") discriminates against another person ("B") if

(a) on grounds of age A treats B less favourably than he treats or would treat other persons or

(b) A applies to B a provision, criterion or practice which he applies or would apply equally to persons not of the same age groups as B, but

(i) which puts or would put persons of the same age group as B at a particular disadvantage when compared with other persons and

(ii) which puts B at that disadvantage,

and A cannot show the treatment or, as the case may be, provision, criterion or practice to be a proportionate means of achieving a legitimate aim." [my emphasis]

7. Regulation 7(2)(d) makes it unlawful, subject to the defence of justification, to discriminate on age grounds against an employee by dismissing him or subjecting him to any other detriment.
8. Regulation 32 provides:

"(1) Subject to paragraph (2) nothing in Part 2 or 3 [which includes the field of employment] shall render it unlawful for a person ("A") in relation to the award of any benefit [my emphasis] by him to put a worker ("B ") at a disadvantage when compared with another worker ("C") if and to the extent that the disadvantage suffered by B is because B's length of service is less than that of C.

(2)Where B's length of service exceeds 5 years, it must reasonably appear to A that the way in which he uses the criterion of length of service, in relation to the award in respect of which B is put at a disadvantage, fulfils a business need of his undertaking (for example, by encouraging the loyalty or motivation, or rewarding the experience, of some or all of his workers."

Sub-regulation (7) of Regulation 32 defines "benefit thus: ""benefit" does not include any benefit awarded to a worker by virtue of his ceasing to work for A".

Finally, in the interpretation Regulation "benefit" is further defined to include facilities and services [subject to irrelevant exceptions].

The Parties' arguments

9. These were very well presented by both counsel and I would like to thank them for their assistance.

For the Employers

10. Mr Cheetham made the following points, which I summarise from his skeleton argument.

(i) It is essentially common ground that, unless justified, the application of the service criterion is potentially unlawful It discriminates against the younger employee, so that, for example, of two employees aged, say 35 and 55, who each started work when they were 20, and who scored the same as each other in relation to the 'measured criteria', the younger would score less points overall because of his length of service due to his age.. The evidence shows that many employees start work with Rolls Royce at the age of 16 and 17. Therefore, to be lawful, the length of service criterion would have to be justified.

(ii) The principles which apply to cases of 'justification' are to be found in a very recent and, as yet, unreported decision of the EAT: McCulloch v ICI UKEAT/0119/08, BAILII: [2008] UKEAT 0119_08_2207. At issue was the lawfulness of a severance payment agreement which gave more to the older members of staff with longer service. These principles are helpfully extracted from that case at paragraph 36 of Counsel's skeleton submission and I set them out here:

"(1) The burden of proof is on the [employer] to establish justification

(2) The classic test [of justification] was set out in Bilka-Kaufhaus etc [1984] IRLR 317 in the context of indirect sex discrimination. The ECJ said that the court or tribunal must be satisfied that the measures must "correspond to a real need... are appropriate with a view to achieving the objectives pursued and are necessary to that end". This involves the application of the proportionality principle, which is the language used in Regulation 3 itself. It has subsequently been emphasised that the reference to "necessary" means "reasonably necessary": see Rainey v Greater Glasgow Health Board (HL) [1987] ICR 129 er Lord Keith of Kinkel at pages 142 -143

(3) The principle of proportionality requires an objective balance to be struck between the discriminatory effect of the measure and the needs of the undertaking. The more serious the disparate adverse impact, the more cogent must be for the justification for it: Hardys v Hansons Plc v Lax [2005] IRLR 726 at paras 19 - 34, 54 -55, and 60.

(4) It is for the employment tribunal to weigh the reasonable needs of the undertaking against the discriminatory effect of the employer's measure and to make its own assessment of whether the former outweigh the latter. There is no' range of reasonable response' test in this context: Hardys v Hansons Plc v Lax at page 726.

(iii) The legitimate aim of Rolls Royce in carrying out redundancy selection is to ensure that it retains the person(s) best able to meet the changed business requirement. At paragraph 1 of the Joint Staff Unions Agreement dealing with Redeployment and Redundancy the agreed "Purpose" recorded is:

"To define the arrangements associated with a manpower rationalisation programme which will enable manpower levels to be correctly balanced to workload and cost requirements."

(iv)The Objective of the 2^nd agreement is

"to ensure that in the event of redundancy, the Company's Business suffers the minimum disruption and maintains a workforce that is appropriate to meet its future operational needs, whilst compensating employees for the loss of employment in a manner reflecting their years of service."

(v) Counsel submitted that the scored selection criteria address the business requirement by assessing and scoring measurable skills. "Awarding points for continuity of service in the redundancy exercise is not a means of achieving a legitimate aim, because that aim - the business need - is met by the other criteria." [Skeleton Argument]. He submitted that the length of service requirement was not objectively justifiable; that it was not "necessary" in order to meet the reasonable needs of the business.

(vi)As to the suggestion that length of service recognises and rewards loyalty, even if it were true, it is not related to the purpose of the exercise which is to fulfil a business need. Loyalty is reflected in the measured criteria. Those who score most highly are likely to be those who have shown loyalty and length of service is not, per se, an indicator of loyalty. A long serving employee could be most disloyal throughout his employment. If long service were said to demonstrate experience and skill, then those characteristics were also reflected by the scores in the measured criteria.

(vii) Counsel referred to the case of Cadman v Health & Safety Executive [2006] IRLR 969 where the ECJ held:

".. the Court acknowledged that rewarding, in particular, experience acquired which enables the worker to perform his duties better constitutes a legitimate objective of pay policy. As a general rule, recourse to the criterion of length of service is appropriate to attain that objective. Length of service goes hand in hand with experience, and experience generally enables the worker to perform his duties better.

The employer is therefore free to regard length of service without having to establish the importance it has in the performance of specific tasks entrusted to the employee."

(viii) This case, he submitted was about the legitimate aims of a pay policy and not a case such as this where a matrix was developed which would more accurately measure actual experience and ability to meet the needs of the business. Rewarding loyalty, he submitted, by providing benefits during ongoing employment "reflects a different business need to that which leads to - and defines- a redundancy exercise." [Paragraph 52 Skeleton Argument].

(ix) The fact that the length of service criterion is included in a collective agreement with the Trade Union is relevant, but only to the proportionality of the treatment. Counsel referred me to the case of Loxley v BAE Systems unreported UKEAT/0156/08, BAILII: [2008] UKEAT 0156_08_2907.

".. the fact that an agreement is made with the trade unions is potentially a relevant consideration when determining whether treatment is proportionate. The decision of the ECJ in the case of Palacios de la Villa v Cortefiel Services SA [2007] IRLR 989 strongly supports that proposition. The Court recognised that one of the considerations that could properly weigh in the assessment of whether compulsory retirement was justified was that the rules in question had been collectively agreed. ... Plainly the imprimatur of the trade union does not render an otherwise unlawful scheme lawful, but any tribunal will rightly attach some significance to the fact that the collective parties have agreed a scheme which they consider to be fair."

(x) The Collective Agreements in this case were made before the commencement of the Age Regulations. "If the service-related criterion is not seeking to achieve a legitimate aim within the redundancy exercise, then the existence of the collective agreement is not relevant." It is accepted that older employees may find it more difficult to get other employment than the younger ones. But that is not relevant to the purpose of a redundancy selection exercise.

(xi) Finally, with regard to Regulation 32 it derives from one of the illustrations given in Article 6.1 of the Directive namely "the fixing of minimum conditions of... seniority in service ...to certain advantages linked to employment'. In other words Regulations 32 is dealing with benefits awarded during employment, such as extra leave dependent upon the number of years of service and is not concerned with a process by which it is determined who loses their job in a redundancy situation. The Regulation excludes any benefit awarded to a worker by virtue of his ceasing to work. The words "award of any benefit" suggests something that improves an employee's terms of employment.

For the Union

11. It is not suggested by Rolls Royce that the agreed selection criteria are in any way detrimental to their business. Such statistics as there are show a broad range of age and length of service amongst the workforce.
12. It is appropriate to consider Regulation 32 first since it provides an exception to Parts 2 and 3 of The Regulations and, if applicable, a different test of justification is called for [arguably a less stringent test]. Thus the court will be required to consider three issues:

(a) Whether the inclusion of a length of service criterion in the redundancy selection matrix potentially constitutes a "benefit"?

(b) If so, was it reasonable for Rolls Royce to consider that the inclusion of the criterion "fulfils a business need of the undertaking (for example, by encouraging ... loyalty or motivation, or rewarding the experience of some or all of his workers"?

(c) Whether the "benefit" is one "awarded to a worker by virtue of his ceasing to work for A"?

(i) As to "benefit", the dictionary defines benefit as "advantage" or "profit". There is no indication in the Regulations that the word "benefit" is to be construed restrictively such that it applies only to financial payments or discounts. The criterion does represent an advantage because the points awarded for long service may protect the worker from dismissal: a real advantage.

(ii) As to 'fulfilling a business need' the examples given show that encouraging loyalty is the exemplar of a criterion which fulfils a business need, since it is to be assumed that one business need is loyalty. "Without being flippant, an increased prospect of retaining employment when economic times are bad, and the employee is at their (sic) most vulnerable in the labour market (i.e. older), is far more valuable and encouraging/rewarding of loyalty than the award of a gold watch (or even enhanced redundancy terms)." [Paragraph 30 of the Skeleton argument]. The length of service criterion is not a blunt tool such as a Last In First Out [LIFO] principle which stands alone. Here, it is part and parcel of a more sophisticated approach which measures other factors as well.

(iii) The "benefit" was manifestly not made by virtue of the worker ceasing to work for his employer; it is awarded in the context of a scheme to determine who retains their employment.

(iv) In relation to Regulation 3, it is to be noted that the potential discrimination which requires justification is indirect rather than direct. Unlike the statutory Redundancy Payments Scheme, there is no explicit reference to age. Justifying direct discrimination places a heavier burden on the employer than seeking to justify indirect discrimination. The Employers have defined the 'legitimate aim' too narrowly. The aim of the Collective Agreements was not just to give the employers the best mix of employees who are best able to meet the changed business requirement. There are two sides to the bargain arrived at. From the Union's perspective the aim of the selection process was to produce a scheme that was fair and could be "peaceably" implemented. Fairness to the workforce in the selection process is itself a legitimate aim, as is the encouragement of loyalty of employees, the reward of experience and the protection of the most vulnerable members of the workforce, namely those who are least likely to be able to obtain alternative employment after dismissal, namely the older employees.

Decision

13. In my Judgment the Union are right for the reasons they give in their arguments.
14. I start with Regulation 3. I agree with Mr Edwards of counsel, for the Union, that Rolls Royce have defined the policy behind the Collective Agreements too narrowly. If employers were unconstrained by concepts of fairness to their staff, they would choose to retain those members of staff whom they considered to be best for the business. Subjective judgments would be made and people chosen on the basis, for example, that they would fit in to the new workforce. The concept of fairness introduced over 30 years ago limited, and to some extent prevented, the employers' unconstrained freedom of choice. Redundancy policies were developed, often in conjunction with recognised trade unions. The Collective Agreements relating to redundancy in this case represent a compromise negotiated between the Employers and Union. As they make clear, the Union is in principle opposed to compulsory redundancy. That is because the Union sees its role as the protector of the staff from the unconstrained powers of the employer to run his business as he will. The Union wishes to protect those whom they represent from being put onto the labour market.
15. The Collective Agreements represent a compromise between them. It is in both parties' interests that a redundancy exercise, if such is needed, is carried out in a way which is perceived as fair and can be executed "peaceably". In my Judgment, this is a legitimate business aim. It is an aspect of a "legitimate business policy" within the meaning of Article 6 of the Directive. The fact that the parties have achieved a peaceable transition following redundancy does not necessarily mean that Rolls Royce have achieved their defined business aim, although it seems to me that length of service is likely to be a fair indicator of both loyalty and experience which might not be fully taken account of in the measurement process. Had the Court been concerned with a Scheme which was LIFO alone then that might be objectionable; but this is not such a case. It seems to me that the parties have adopted a scheme which enables the employer to succeed in a defence to an age discrimination claim under Regulation 3: the legitimate aim is the advancement of an employment policy which achieves a peaceable process of selection agreed with the recognised Union. The criterion of length of service respects the loyalty and experience of the older workforce and protects the older employees from being put onto the labour market at a time when they are particularly likely to find alternative employment hard to find.
16. But, in any event, it seems to me that this case falls squarely within Regulation 32. The 'award of any benefit' is not constrained as the employers suggest. The words are general. In a redundancy selection matrix it seems to me clear that to give points for long service does confer on the employee concerned a benefit. Just as it might lead to an increase in holiday entitlement, which Rolls Royce would describe as the award of a benefit, so it might lead to the retention of employment which would otherwise be lost. To remain in employment whilst others lose their jobs would be properly described as a benefit. To have the benefit of long service is a normal use of language.
17. Regulation 32(2) simply requires the employer to justify the impact of an age related award only to those employees whose length of service exceeds 5 years. It seems to me significant that Parliament contemplated that a length of service criterion might reasonably appear to an employer to encourage loyalty or reward experience. Where there is an agreed redundancy scheme, negotiated with a recognised Trade Union, which uses a length of service requirement as part of a wider scheme of measured performance, it is probable in my judgment that such would be regarded as reasonably fulfilling a business need.
18. In my Judgment, therefore, Rolls Royce are wrong in their contention that the length of service criterion in the Collective Agreements is unlawful as a result of the Age Regulations.