UK EAT finds caps on termination payments are not a proportionate means of achieving a legitimate aim of preventing a windfall
The UK Employment Appeal Tribunal has ruled that imposing caps on termination payments is not a proportionate means of achieving a legitimate aim of preventing a windfall related to disability and accordingly the cap constituted indirect discrimination on the disability ground.
The claimants were longstanding police officers with Gwent police. Both officers were men in their forties who were disabled under the Equality Act 2010. Although they were disabled from performing the ordinary duties of a member of the police force they were still able to perform valuable back office functions and so continued on full pay. Both officers had a ‘H1 certificate’ which under the Police Pensions Regulations gave them access to their deferred pensions immediately on leaving the force. Without the H1 Certificate they would not receive their deferred pensions until the age of retirement, in this case age 60.
As part of the UK’s public-sector austerity measures a voluntary exit scheme (VES) (analogous to a voluntary redundancy scheme) was introduced allowing the Chief Constable to pay a compensation lump sum for officers who left the force voluntarily. The compensation lump sum amounted to one month’s pay multiplied by the officer’s years of service, up to a maximum of 21 months’ pay. The claimants had 23 and 18 years’ service respectively. Where, however, the officer was at or over ‘Pension Age’, the compensation lump sum was capped at six months’ pay. ‘Pension Age’ in the relevant Gwent scheme document stated that it is the age “… at which the individual would be eligible to receive their pension assuming they left the service on the agreed date for voluntary exit”.
As the claimants were entitled to their deferred pensions immediately on retirement the Chief Constable capped the compensation lump sum for each of the claimants at six months’ pay. The difference for the claimants in not receiving the full possible payment amounted to £50,000 for one claimant and £40,000 for the other.
The questions put to the Employment Tribunal were:
- Did the following constitute “something arising in consequence of the Claimants’ disability”: the issue of H1 certificates.
- Did the respondent treat the claimants unfavourably because of the issue of H1 certificates? The claimants relied upon capping of the VES payments to 6 months’ pay as unfavourable treatment.
- In so far as there was such treatment, was this treatment a proportionate means of achieving a legitimate aim? The respondent relied upon the following legitimate aim: the need to properly manage the authority funds.
The Employment Tribunal found in favour of the claimants on each count. This was appealed by the Chief Constable to the Employment Appeal Tribunal.
Employment Appeal Tribunal
In upholding the ruling the EAT made the following observations:
The decision to cap the compensation lump sum was based on the claimants’ entitlement to the immediate receipt of deferred pension. The entitlement to the immediate deferred pension was based on their H1 Certificates. The H1 certificates were based on exactly the same disability criteria as under the Equality Act 2010. Therefore, the EAT concluded that the treatment was ‘something arising in consequence on their disability’.
In deciding whether there had been unfavourable treatment the EAT distinguished between the UK Supreme Court case of Williams v Trustees of Swansea University Pension and Assurance Scheme. In Williams the relevant treatment was in relation to the ‘award of a pension’ which could not be said to be unfavourable. In contrast, the present case related to capping the compensation lump sum which the EAT found could be and was unfavourable treatment.
The EAT noted that the “legitimate aim” put forward was the need to properly manage the authority funds but that it was clear that ultimately the legitimate aim the Chief Constable relied on was that of preventing the claimants receiving a “windfall”. The Chief Constable believed there would be a windfall if they received both the uncapped payments and their pension. The EAT emphasised that the mere fact that they were in immediate receipt of the “deferred pension” was not sufficient to establish that the compensation lump sum amounted to a windfall. It was further noted that the Chief Constable had not advanced or provided the material necessary to support any other case. The Chief Constable had not provided the calculations for the claimants in question instead relying on examples of similar scenarios. Compelling material evidence is needed to show that the legitimate aim exists, and that the treatment is reasonably necessary and proportionate to achieve that aim.
This case offers an interesting insight into the UK’s distinction between what does and does not constitute unfavourable treatment in relation to pensions. Furthermore, it acts as a warning for employers to ensure that any argument for justification is based on evidence that is specific to the case and relies as empirical data and facts.
One differentiating factor to be aware of when looking at this case is that in Ireland, under section 34(3)(d) of the Employment Equality Acts 1998 – 2015, it is not considered discrimination for an employer to provide different rates of severance payment for different employees based on how close they are to compulsory retirement.