Cap on Redundancy Pay not Unlawful Age Discrimination

In Kraft Foods UK Ltd v Hastie UKEAT/0024/10, a provision in a redundancy scheme capping redundancy pay to the amount that the employee would have earned had he remained in employment to the normal retirement age was not unlawful age discrimination under the Employment Equality (Age) Regulations 2006. Although the provision disproportionately affected employees approaching retirement age, its aim of preventing employees from receiving excess compensation was legitimate and it was a proportionate means of achieving that aim.

Kraft Foods UK Ltd (Kraft) operated a generous voluntary redundancy scheme under which employees received 3.5 actual weeks' pay for each year of service. The scheme applied a cap so that redundancy payments did not exceed the amount that they would have earned (at their current rate of pay) had they remained in employment until the normal retirement age (65). Mr Hastie was 62 years old and the effect of the cap was that Mr Hastie's redundancy payment was reduced from roughly £90,000 to £76,560. He brought a claim for unlawful age discrimination and the tribunal agreed that the cap constituted a provision, criterion or practice which disproportionately applied to employees approaching 65, and would therefore constitute unlawful age discrimination unless it was objectively justified.

It was held on appeal that the cap was justified as it prevented employees receiving a windfall. The object of the scheme was to compensate employees who took voluntary redundancy for the loss of earnings they had a legitimate expectation of receiving if their employment had continued, i.e. it compensated for those earnings which the employee would have been entitled to had they remained in employment. Employees who are closer to retirement cannot expect the same level of earnings from future employment as younger employees who are further away from retirement. It was therefore legitimate for the scheme to incorporate a provision designed to prevent excess compensation for employees close to retirement and the cap used by Kraft was a proportionate means of achieving that aim. The redundancy scheme was not therefore unlawfully discriminatory under the Employment Equality (Age) Regulations 2006.