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 marie.allen@gotelee.co.uk.

 

Blog Posts

Stress Awareness Post COVID-19

14/04/2021

When we first heard news reports of a virus sweeping the globe back in…

Read More
Upcoming Events

Supply Chain Supper Club – February 2020

05/02/2020

This event is invite only. If you would like to receive an invite, please…

Read More
News Posts

Gotelee Solicitors LLP announce three new promotions

01/04/2021

Gotelee Solicitors LLP is delighted to announce three recent promotions within the firm. Kay…

Read More

Testimonials

"Prompt, helpful, polite and very professional service"

-

"Jade Shelton was absolutely fantastic!! Professional and proactive at all times."

- JH

"This is by far the go-to firm for any issues. You are made to feel valued from the outset and they are so confident in what they do. Wouldn't recommend any other. Thank you Hugh and Max."

- Ros Jones

"I would like to say thank you for your help, support and guidance over the last two and a half years. Obviously should I need further assistance in the future I shall not hesitate to call you guys."

-

"Jade made the process of buying our first home quick, easy and took the stress out of a new chapter of our lives"

-

"We found Rachel Dawson outstanding, polite, professional and caring."

-

"The ease that we could access and speak to Pat Smith - Thank you"

-

"I don't think this house sale would have pulled together without Jo's determination and expertise. Excellent!"

- MT

"“ This is the second time we have used Tracey for the conveyancing to buy our new home. She is always completely approachable, she has helped us along the way with advice and useful tips that has helped lessen the stress. We have complete confidence in her and would not hesitate to recommend her to our friends and family”.  - Peter Dawes, Cater Dawes Financial Planning "

-

"Approachable, very efficient, always willing to take my calls and update me."

- SH

    Please select preferred method of contact

    * We will only contact you by telephone if you select this as primary form of contact. All web enquiries will be stored on our website for 30 days.