Indirect discrimination

Under the Equality Act 2010, a person is indirectly discriminated against if a provision, criterion or practice (PCP) is applied to them, which does or would put that person at a disadvantage compared to others. However, where the application of the PCP is justified as a proportionate means of achieving a legitimate aim, it will not constitute indirect discrimination.

It has been a long-established principle of case law that an employer cannot justify a discriminatory PCP solely on the ground that to avoid the discrimination would be costly. This was considered further by the Employment Appeal Tribunal (EAT) in 2015, which decided that cost considerations may be taken into account but only along with other factors. This led to the approach being labelled "cost-plus".

The cost-plus approach was recently considered by the Court of Appeal in Heskett v. Secretary of State for Justice.

Heskett v. Secretary of State for Justice

Mr Heskett was employed as a probation officer. A new pay progression policy was introduced. Under the new policy, Mr Heskett would progress one pay point per year, as opposed to three pay points by which he could expect to progress under the old policy. Mr Heskett brought a claim for indirect age discrimination. He argued that the policy put those aged under 50 at a significant disadvantage to those aged over 50, as older employees at the top, or nearing the top, of the band would earn significantly more in salary and accrue greater pension benefits than those lower down the band.

At first instance, an employment tribunal agreed with the employer’s objective justification for the policy – the need to cut costs and "live within its means". The tribunal also took into account that the policy was temporary. On appeal, the EAT upheld the tribunal’s decision.

The Court of Appeal dismissed Mr Heskett’s further appeal that his employer was relying on costs alone to justify the discrimination, and that there was no evidence that the policy was temporary. The Court of Appeal considered the distinction between applying a PCP because it would simply be more expensive otherwise, and applying a PCP because it would be unaffordable otherwise. The court held that an employer’s need to reduce its expenditure, and specifically its staff costs, in order to "balance its books" could constitute a legitimate aim. It then needed to consider whether the actions taken were a proportionate means of meeting that aim, or whether there was a less discriminatory way to achieve it.

In this case, the court acknowledged that the employer’s short-term means of responding to the problem was proportionate.

What does this mean for employers?

Whilst employers will still need to search for the "plus factor" to their costs argument for imposing potentially discriminatory measures, it is now helpful to know that the need to balance the books can be a legitimate aim. Since all organisations will find they are being driven by a need to balance the books and nearly all decisions made by employers will in some way relate to cost, this case is important in lowering the bar to establishing a legitimate aim.

The courts appear to accept that a pragmatic view needs to be taken, but are also clear that attempts to find the plus factor should not be artificial. The establishment of a legitimate aim by the employer will be dependent on how the aim can be most fairly characterised when looked at in totality. In any event, it remains important for employers to consider whether there is a less discriminatory way of balancing the books, with a focus remaining on proportionality.