The Court of Appeal has held in Heskett v Secretary of State for Justice that saving or avoiding cost alone cannot justify indirect discrimination, however an employer's need to reduce expenditure, including staff costs, in response to financial constraints can constitute a legitimate aim.
The claimant had been employed as a probation officer by the National Offender Management Service (NOMS) from 2006. In 2010 the Treasury announced a public sector pay freeze with the aim of limiting pay increases across the public sector to 1% of overall pay costs. Pay negotiations between NOMS and trade unions resulted in a new pay progression policy. Under the old policy a probation officer could progress three points up the pay scale each year, whereas under the new policy they would only progress one pay point per year. This meant that it would take the claimant 23 years to progress from the bottom to the top of his pay band, rather than seven or eight years. The claimant brought a claim of indirect age discrimination (he was 38 at the time) on the basis that the change to the pay progression was a provision, criterion or practice (PCP) which disadvantaged younger employees such as himself because they were less likely than older colleagues to have reached the top of the applicable pay range when the PCP came into force.
At first instance the tribunal accepted that NOMS had adopted a PCP which placed people of the claimant's age at a particular disadvantage. However, the tribunal found that the aim was not simply cost cutting in that NOMS had to live within its means and the changes to pay progression were its way of dealing with reduced financial means. It also took account of the fact that the pay policy was a temporary measure, and that NOMS was giving active consideration to changing it so as to reduce the age-discriminatory effect. Although the pay inequities could not be justified in the long term, the policy was a proportionate short-term response to the financial measures imposed by the Treasury.
The claimant's appeal to the EAT was unsuccessful, and he appealed further to the Court of Appeal. The Court reviewed the "costs plus" principle and concluded that, although it could not be said to be incorrect, it was preferable to avoid it so far as possible as it could lead to "an inappropriately mechanistic" approach. The Court held that 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 so NOMS's need to observe the constraints imposed by the pay freeze was a legitimate aim.
The Court concluded that the PCP was a proportionate means of achieving NOMS's aim. It held that an employer might feel obliged to take urgent measures which had an indirectly discriminatory effect on a group of its employees, and there was no reason in principle why it should not be open to the employer to seek to justify those measures on the basis that they represented a proportionate short-term means of responding to the problem even if they could not be justified in the longer term.
Take note: The decision in Heskett confirms that the need to save costs will not, by itself, justify indirect discrimination. However, the need to operate within a budget will be treated as a legitimate aim that is more than just saving cost, though the way in which resources are spent within the budget will need to limit any discriminatory impact as much as possible. It will also be open to an employer in this situation to seek to justify any indirectly discriminatory measures on the basis that they represent a proportionate short-term means of responding to the problem in question.
