Indirect discrimination and the Costs Plus rule explained

22nd January 2021

Indirect discrimination and the Costs Plus rule explained

Indirect discrimination arises where an employer applies a provision, criterion or practice (PCP) to several (or all) employees which put those with a certain protected characteristic, e.g. sex or age, at a particular disadvantage compared to those who don’t share that protected characteristic.

The costs plus rule

An employer has a defence to an indirect discrimination claim if it can show that the PCP is a ‘proportionate means of achieving a legitimate aim’.

One principle that has been established through many years of case law on the subject of justification, is that a need to make cost savings will not, on its own, amount to a legitimate aim. In other words, there must be something in addition to costs – hence this is known as the ‘costs plus’ rule.

In Heskett v Secretary of State for Justice, the Court of Appeal was asked to consider an appeal from an employee who had lost his claims for indirect age discrimination in both the Employment Tribunal and Employment Appeal Tribunal (EAT). Mr Heskett was a Probation Officer with the National Offender Management Service, an executive agency of the Ministry of Justice. Probation Officers were paid according to a pay scale under which they could progress 3 points per annum. However, in 2010, the Government froze pay and limited public sector pay increases to 1% per annum, in response to which the Probation Service reduced pay progression to 1 point per annum. This meant that it would take Mr Heskett 23 years to progress from the bottom to the top of his pay band, rather than 7 or 8 years.

As a result of the policy change, Probation Officers at the top, or nearing the top, of the band (who statistically were older than those at the lower ends of the band) would earn significantly more in salary and accrue greater pension benefits than those lower down. Mr Heskett claimed that the policy was indirectly discriminatory, arguing that it put those aged under 50 (including himself) at a significant disadvantage to those aged over 50. Whilst the employment tribunal and EAT both agreed that the policy was indirectly discriminatory, they found that the policy was nevertheless justified as a proportionate means of achieving a legitimate aim.

The basis of Mr Heskett’s appeal was that the policy had been introduced to save costs and that in the absence of any other factor (‘the plus’) this was in breach of the rule that discrimination cannot be justified where the reason is solely to save costs.

The Court reviewed all the relevant case law and concluded that ultimately it had to determine what the employer’s primary objective was. Was it to save money? If so, then this was not a legitimate aim. However, it held that a distinction must be drawn between a situation where an employer had introduced a policy to save money, from one where it was being forced to do so in the face of real financial pressures in order to make ends meet. It held that the latter would be a legitimate aim.

The Court, therefore, concluded that the employment tribunal had been entitled to treat the employer’s need to observe the constraints on staffing costs imposed by the Government pay freeze as a legitimate aim. However, it still had to show that the measures complained of represented a proportionate means of achieving that aim, having regard to the disparate impact on younger employees and whether the aim could have been addressed in a way which did not have a discriminatory effect.

The Court of Appeal concluded that the policy was proportionate. Of significance was that the new policy was only intended to be a temporary measure, and the employer had demonstrated that it was actively considering changing the policy to reduce the discriminatory effect. This was, therefore, a short-term response to extreme financial pressure which was justified in the circumstances. The appeal was dismissed.

Whilst this case reinforces that employers need to continue to demonstrate a ‘plus’ when introducing any new PCP, it is now clear that a need to operate within budgetary constraints or to “make ends meet” should be treated as a legitimate aim.

Get in touch

If you require advice on this, or any other employment law issue, please contact Marie Allen on 01473 298133 or


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