Employment Law Pension Case Review from Michael Malone

Former Employment law judge and now Mediator at Trinity barristers, Michael Malone has prepared the following analysis that will be of interest to employment lawyers and solicitors, specifically in relation to the complex area of pensions. The analysis is of a significant Court of Appeal decision - delivered just before Christmas by a court which included two distinguished retired judges, Sir Patrick Elias and Sir Colin Rimer.

The Lord Chancellor v McCloud and others; The Secretary of State for the Home Department and others v Sargeant and others - [2018] EWCA Civ 2844

Eyes tend to glaze over when the talk turns to pension cases. When a judgment of 73 pages directly concerns only the pensions of youngish judges and firefighters, many employment lawyers will struggle to find the motivation to read it. It should be required reading, for it deals with some fundamental concepts of indirect discrimination and equal pay.

In both cases, the government replaced occupational pension schemes with less generous schemes but permitted workers who on 1 April 2012 were within ten years of normal pension age to remain in the original schemes. There was also tapering protection for some slightly younger workers who just missed out on the full protection. The claimants were workers who had no protection and workers who had only the tapering protection. Plainly there had been direct age discrimination against them. The main issue in both cases was whether this direct age discrimination was objectively justified.

At first instance the judicial claimants won hands down. It was held that the government had failed to show either a legitimate aim or proportionate means. The EAT dismissed the government’s appeal. The EAT held that the tribunal had erred in finding that there was no legitimate aim, failing to pay due regard to a complex of moral and political judgments and the material on which they were based. However, the tribunal had been entitled to find that the means adopted were not proportionate.

The firefighter claimants lost in their tribunal, which held that the government had succeeded on both legitimate aim and proportionate means. The EAT agreed that a Member State had a wide margin of appreciation in relation to legitimate aims but allowed the claimants’ appeal on proportionality and remitted the case for re-hearing.

The Court of Appeal has dismissed the government’s appeal in the judges’ case. The tribunal had been entitled to find for the claimants on legitimate aim as well as proportionate means. The Court has also allowed the appeal of the claimant firefighters. In that case also, the Court held, the government had failed to show a legitimate aim. A Member State does indeed have a margin of appreciation, but that does not mean that its choice of legitimate aim is free from scrutiny. The aim must be rational and it must be based on evidence. The government chose to give transitional protection to those workers who needed it least and failed to give a rational explanation for that choice. Since the Court had allowed the appeal of the claimant firefighters on legitimate aim, there was no need for the case on proportionate means to go back to the tribunal. The claimants had therefore succeeded in their age discrimination claims.

The principles on which these cases have been decided by the Court of Appeal apply to any direct age discrimination case and not only to cases of discrimination in pension schemes. At paras 69-87 the Court reviewed the domestic and EU authorities relating to age discrimination generally. Seldon is the most significant decision (para 78) and is consistent with the European decisions (para 84). Direct age discrimination can be justified only by social policy or public interest objectives, as opposed to purely individual reasons, such as reducing costs or improving competitiveness (para 79(2)), but identifying such objectives is only a starting point. Where government has an interest in an issue which arises in a discrimination case, it is to be afforded a margin of discretion, but it is for the fact-finding tribunal to assess the amount of discretion to be afforded (para 87). That applies to both aim and means (para 85). ‘Margin of discretion cannot rescue an aim that is irrational’ (para 86).

All this is important, but in addition the Court of Appeal dismissed an apparent anomaly in the Equality Act, took aim at two heresies and flew a couple of interesting kites. They did so in the context of equal pay and indirect race discrimination claims which had been raised in both cases. It was conceded by the government in the judges’ case that the disadvantaged younger judges included a disproportionately high number of female and BME judges. No such concession was made in relation to the firefighters. There the statistics were less clear.

One of the possible objections to the equal pay claims was based on a difference between the wording of the material factor defence in s 69(1-3) of the Equality Act and that for pensions cases in s 69(4). On a literal reading, the latter material factor defence could arguably be defeated only by direct sex discrimination. This was the view taken by the EAT. The Court of Appeal gave it short shrift. On that reading the statute would not fully implement the EU principle of equal treatment. In any event, similar wording in the 1970 Act had been construed to include indirect discrimination (para 188). Indeed, the point was not taken by the government in the Court of Appeal.

A defence which was strenuously argued in relation to the equal pay and race discrimination claims was that there was no causal connection between the relevant protected characteristics and the disadvantage. The Court pointed out that the relevant principle was adopted by the Court of Appeal in Armstrong v Newcastle Upon Tyne NHS Hospital Trust [2006] IRLR 124, where it was held that a respondent may defeat a claim based on compelling statistics by showing that there is no discrimination and therefore no need to prove objective justification.

The Armstrong defence has understandably been run by respondents in numerous equal pay cases, almost always unavailingly. In McNeil and others v Commissioners of HM Revenue and Customs [2018] ICR 1529, Simler J (as she was then), as President of the EAT, expressed the view that the principle had not survived the Supreme Court decision in Essop and Naeem, but dealt with the issue fairly concisely. Armstrong should now be regarded as heretical. The Court of Appeal gave detailed consideration to the issue and roundly rejected the arguments for reconciling Armstrong with Essop/Naeem (paras 209-230). The equal pay and race discrimination claims by the judges succeeded.

A further defence which was raised only in the firefighters’ case was based on a second heresy. This one dates back to an EAT appeal in another Newcastle case, Tyne and Wear Passenger Transport Executive v Best EAT/0627/05. In that case, the EAT judge expressed the view that an equal pay claim by women cannot succeed where the overwhelming majority of the disadvantaged group is male. That principle has been relied on in many subsequent cases.

Of the firefighters, there were 81 women in the fully advantaged group, amounting to well under 1% of the total. There were 566 women, or a little over 4%, in the wholly or partly disadvantaged groups (para 197). It followed that nearly 96% of the disadvantaged groups were men and the tribunal can hardly be faulted for dismissing the claims in reliance on the Tyne and Wear principle. That principle is no longer a safe guide. The Court said that it is ‘not legitimate to adopt a rule of thumb’ and ‘treat it as decisive in all cases’ (para 205). Indeed, the Court suggested that if it had been necessary to remit the equal pay and race discrimination claims, the appellants would have had real difficulty in showing no relevant group disadvantage (para 208). Because the claimants had succeeded on age discrimination, however, the equal pay and race discrimination cases were remitted and stayed.

Finally, and briefly, what of the two kites mentioned above? A secondary reason for rejecting the Tyne and Wear rule of thumb was that that was an Enderby type case and that these are PCP cases (para 204). One can see the logic of requiring less compelling statistics where the employer has actively chosen to do something to cause a particular disadvantage, as opposed to cases where a disadvantage has simply arisen as a result of separate collective bargaining arrangements. However, it was decided by the Court of Appeal in Home Office v Bailey [2005] ICR 1057 that the approach to the statistics should be the same in both cases. That is an issue which may well have to be revisited in an appropriate case.

Secondly, when considering the general issue of justification where a single PCP causes particular disadvantage in relation to more than one protected characteristic, the EAT commented that ‘it is obviously easier to justify a PCP where relatively few people are disadvantaged than where that number is large’ (para 176). In my experience, a tribunal would be very cautious about acting on that basis. Once individual and group disadvantage have been established, it could be dangerous to dilute the justification test on the ground that not many people are affected. A fundamental right is entitled to a consistent level of protection. On the other hand, there may be cases where the individual or group disadvantage is abnormally great, to the extent that a defence of justification may properly be rejected even where legitimate aim and reasonable necessity are established. Indeed, an article by Jackie Lane and Rachel Ingleby in the current issue of the Industrial Law Journal argues that a more ‘robust approach’ to proportionality may have that effect. 

For any queries regarding Trinity Chambers’ Employment barristers or employment law related Alternative Dispute Resolution (ADR) and mediations contact Steve Preen or Steve Walker in the civil clerking team.

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