Budgetary constraints may justify indirect discrimination rules Court of Appeal

Out-Law News | 19 Nov 2020 | 12:53 pm |

Shuabe Shabudin tells HRNews about the decision in Heskett on application of the ‘cost-plus’ rule, and why it helps employers.

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  • Transcript

    The Court of Appeal has handed down a useful ruling on the scope of the so-called 'cost plus' rule as it applies in discrimination cases. So the rule, which is well established, says that if an employer has a policy which is indirectly discriminatory and the employer’s aim is no more than to save money it cannot justify the discrimination. However, and this is the key point from the Court of Appeal, the need to balance the books is different and can, potentially, be a valid justification. The case, which centred on a claim for age discrimination, is called Heskett v Secretary of State for Justice and it is important because it dictates the extent to which employers can rely on cost and budgetary considerations when they try to justifypolicies that could disadvantage certain groups of workers in the business. The ruling is a timely one because, of course, so many employers are involved in cost-cutting measures at the current time, given the economic crisis.


    The claim in this case arose in the midst of the previous crisis in 2008 when the government imposed a raft of austerity measure including pay restraints across the public sector. That affected the rate at which probation officers progressed up pay scales – it slowed it down from three pay points each year to just one point which meant it would take around three times longer to progress up the pay ladder which, the claimant argued, had a disproportionate effect on younger employees and couldn't be justified because the aim of the policy was purely to save money. The Court of Appeal rejected that argument. They decided that was not a 'cost alone' case because the employer needed to reduce its expenditure to balance its books and that, in itself, can be a legitimate aim. So this case is helpful to employers albeit the point the Court of Appeal is making is a fairly subtle one. Shuabe Shabudin has been looking at the judgement and what it means for clients. He spoke to me by phone from Birmingham:


    Shuabe Shabudin: "The Court made some really interesting points. Firstly, they confirmed that it's not legitimate to discriminate solely out of a desire to save or avoid costs. So they reinstated, they reminded and they repeated, the points that we already know about the 'cost-plus' rule and it therefore remaining correct, but it went further than that. The court said that it's not just about that, it’s about looking at the whole story. Employers need to avoid what can often be the academic exercise of just finding the other reason and looking holistically at what the situation is in practice for them and their particular circumstances. Now here, for the MoJ, the court found that they were subject to financial pressures which obliged them to reduce costs. So that's different from an employer simply wanting to do things more cheaply so that it can spend less - needing to balance the books can be a legitimate aim. That said, it will always fall for the policy to be considered proportionately, and that will be, of course, dependent on the individual facts of the individual case. So here the court said that it was relevant in this case that the change to the pay scales was only going to be a temporary measure to alleviate the impact of the financial restrictions rather than simply a way of paying less going forward ad infinitum. So, you know, overall it's easy to see from this case that there is some hope for an employer looking to justify a policy where cost is important, albeit not the only factor. Our advice remains that where an employer intends to rely on a 'cost-plus' argument, they must have clear budgetary and financial evidence to show how and why the allocation of limited resources has been arrived at. Also, if there are any plans to reduce the discriminatory impact of the new plans in the future, then it would be really helpful to be able to evidence that as well. Generally speaking, it remains the case that if an employer is not able to show that the reason was more than just cost, they won't be successful in defending it. So in summary, ‘cost –plus’ is still the general principle to be followed, but costs can now perhaps feature more highly in the list than was previously thought.”


    So the 'cost plus' rule survives but we think this case will make it harder for claimants to argue it successfully. As one of the judges puts it (Underhill LJ at para 98): "an employer's need to reduce its expenditure, and specifically its staff costs, in order to balance its books can constitute a legitimate aim for the purpose of a justification defence." However, if you are in any doubt about your policy then we suggest you get legal advice and have it checked.