Upper age limits for unfair dismissal and redundancy ruled unlawful

Every employer needs to be aware of the significant new decision in the case of Rutherford, where the judgement was that the upper age limits for claiming unfair dismissal and statutory redundancy pay are unlawful because they are sex discriminatory. As a result, but subject to the result of an appeal, employees over 65 will be entitled to claim unfair dismissal and redundancy payments.

Unless the Government wins its appeal, the result is to create a mess in the ancillary provisions, which will need legislation to sort out.

Facts:

Mr Rutherford was employed by Towncircle Ltd from 1995 to 1998 when he was dismissed as redundant at the age of 67. He brought claims in an employment tribunal for unfair dismissal or statutory redundancy pay. The employer admitted the claims but argued that Mr Rutherford could not bring these claims due to his age as the fixed upper age limit is 65 years (for men and women) under the Employments Rights Act 1996 ("ERA") for both.

Mr Bentley, the other claimant in the test case, was employed by Bodner Elem Ltd from 1977 to 2001, when he was dismissed at the age of 73 upon the employer becoming insolvent. Mr Bentley sought his redundancy payment from the Secretary of State, which was rejected due to his age, again because he was over the upper age limit of 65.

Findings:

An Employment Tribunal found that the upper age limits were contrary to European law as they were indirectly discriminatory against men and therefore invalid. The Employment Appeals Tribunal agreed to some extent but held that the statistical evidence before the tribunal could not form a proper basis from which the tribunal could reach its conclusion and referred the matter back for reconsideration.

The second Employment Tribunal found that an analysis of labour force statistics showed that the upper age limits set out in the ERA had a disproportionate effect on men (as a substantially higher percentage of the male workforce compared with the female workforce are affected by the upper age limit), amounting to indirect sex discrimination in the absence of objectively justifiable factors. The only justification offered by the Government, of an inextricable link between the upper age limits and the state pension age when it was first introduced, was itself ruled tainted with sex discrimination, and therefore not objectively justifiable.

The Employment Tribunal relied on the seminal European Court of Justice decision in Marshall 1986 where it was found that dismissing women at a different age from men solely because they had attained the qualifying age for a state pension amounted to unlawful sex discrimination. By virtue of this case, the UK government was put on notice of a possible disparate impact on men of the default pension age of 65 but this issue had not been addressed by appropriate legislation.

In terms of development in age discrimination law, an existing European Directive requires member states, including the UK, to introduce legislation prohibiting age discrimination by 2006. However, the effect of this decision (unless overturned on appeal) will mean the Government cannot delay this change until 2006.

This decision is now being appealed by the Government so there is yet no final decision.

Two subsidiary points arise from the decision:

(1) At the moment, further tapering of the redundancy payment takes place for an employee who is 64, as the entitlement will be reduced with 1/12 for each complete month of work that the employee has done between the 64th birthday and the start of the limitation period for submitting a claim. Plainly, the rule can only work if there is a fixed age and its future is therefore wholly unclear.

(2) There is a pension offset linked to redundancy pay. Basically, if the annual value of a pension payable for life is at least one third of the employee's annual pay (before any lump sum commutation) and the pension is payable immediately upon termination, the employer can refuse to pay redundancy pay entirely. If the value of the pension is less than one third or not payable immediately but within 90 weeks of termination, the redundancy payment may be reduced proportionally. Based on the Rutherford decision, this rule could come under fire in terms of both age and sex discrimination.

If you would like further information about this area and the possible impact on your business, please contact Simon Jeffreys at [email protected] or on +44 (0) 20 7367 3421 or Anthony Fincham at [email protected] or on +44 (0) 20 7367 2783 or Alex Green at [email protected] or on +44 1224 622002.