Legislation
Case law: cap on redundancy amount is not age discrimination
30/07/2010 07:30
Employers will welcome the finding that a contractual ‘cap’ on redundancy payments is a valid means of reducing the sum they would otherwise have to pay for an employee, following a recent ruling.
In this case, an employee who was just over two years from retirement, and had nearly 40 years’ service with his employer, applied for voluntary redundancy. His application was accepted, and his redundancy payment was calculated in accordance with the employer’s contractual scheme, which provided for three and a half weeks’ pay for each year’s service. This calculation produced a total of £90,000. However, the employer relied on another provision of the scheme, whereby the amount payable would not exceed the earnings of the employee if he had remained in employment until retirement age. On this basis, the redundancy amount was reduced to around £76,000.
The employee brought a claim in an employment tribunal that the cap disproportionately applied to those approaching retiring age and was unjustifiable; the tribunal agreed and, accordingly, ruled that it constituted unlawful age discrimination.
The employer appealed to the Employment Appeal Tribunal (EAT), arguing that the purpose of the scheme was to compensate employees for the loss of the expectation of remaining in employment.
The EAT allowed the employer’s appeal, stating that the imposition of an upper limit – which prevented the ‘windfall’ of an employee getting paid more than he could have earned in employment – constituted a proportionate means of achieving a legitimate aim.
Operative date
- Immediate