Legal Update
15 December 2020

Balancing the books: Can a need to stay within budget justify indirect discrimination?

Written by May Martin.

 

Introduction

The Court of Appeal held in Heskett v Secretary of State for Justice [2020] EWCA Civ 1487 that an employer’s need to reduce expenditure and operate within its means does not fall under the ‘cost alone’ principle and therefore is a legitimate aim for the purposes justifying indirect discrimination under section 19 of the Equality Act 2010.

 

The Facts

Mr Craig Heskett had been employed since 2006 by the National Offender Management Service (“NOMS”) as a probation officer. He was on a graduated pay scale with six pay bands. Each year, Mr Heskett was entitled to move three ‘spinal points’ up his pay band. Once he reached the top of the pay band, he would progress to the next band and receive a salary increase.  

NOMS was an executive agency whose budget was set by the Ministry of Justice. In 2010, the public sector pay freeze led to a limit being placed by the MoJ on the salary increases that NOMS could offer. To accommodate the cap on salary increases, NOMS changed the pay scale progression from three spinal points per year to one spinal point per year. This was unwelcome news for Mr Heskett who would now take 16 years to reach the next pay band, instead of the 8-9 years it would have taken before the change was introduced. Mr Heskett brought a claim for indirect age discrimination on the basis that it favoured older workers who were inherently more likely to have reached the top of the band before the pay freeze came into effect.

NOMS conceded that the policy was discriminatory but argued that the discrimination was justified because it had to stay within the budget set by the MoJ and therefore needed to reduce its expenditure.

Mr Heskett argued that the justification offered by NOMS was precluded by the ‘cost alone’ principle i.e. discriminatory acts cannot be justified solely on the basis that it is cheaper than not discriminating.    

 

The Decision

The Court of Appeal reviewed the case law which established that reducing cost alone could not be a legitimate aim capable of justifying discrimination but that reducing cost, combined with some other factor (‘cost plus’), could be a legitimate aim.

The Court signalled a subtle shift in how tribunals should approach cases where discriminatory measures are taken because of an employer’s need to reduce expenditure. A tribunal should look at the whole picture and decide how to most fairly characterise the employer’s aim. If the employer’s aim was solely to reduce costs, it would not be a legitimate aim.

The Court held[1] that the aim of NOMS could not fairly be characterised as solely to reduce cost. It was not simply that it would be more expensive for NOMS to avoid the discriminatory impact of the changes, but that the cost of avoiding the discriminatory impact would be ‘positively unaffordable’. It held that there was a distinction between situations where an employer simply wished to reduce costs and situations where it was compelled to do so. In the latter situation, the employer would be pursuing a legitimate aim.

 

Discussion

The decision is a sensible one. As the court noted, almost every decision taken by an employer will have an impact on costs and it would be artificial to ignore that reality. Businesses cannot be expected to incur expenditure beyond their means, so recognising that reducing costs to stay within budget is a legitimate aim is a welcome development, or clarification, of the law. The distinction between the impermissible ‘cost alone’ aim and the permissible ‘cost plus’ aim is, following this judgment, perhaps even finer. Nevertheless, it does still exist in principle. Consideration of the aim further at the proportionality stage does, of course, still allow for a nuanced analysis.

Nevertheless, the judgment raises some interesting questions: 

  1. What is the situation where the employer is not a public body and therefore does not have a budget imposed on it from above? At what stage would a court find that a private company was ‘compelled’ to reduce its costs, as opposed to simply wishing to?
  2. Is there a distinction to be drawn between direct and indirect discrimination? The Court relied upon that distinction[2] when addressing dicta from the judgment in O’Brien v Ministry of Justice [2013] UKSC 6. It will be interesting to see whether this distinction is raised in future case law.
  3. Is there a distinction to be drawn between age discrimination and other types of discrimination? The Court referenced[3] the difficulty of avoiding age discrimination due to the non-binary nature of age and, consequently, it was more willing to consider the cost constraints within which NOMS was operating. Would a different decision be reached if the cost constraints resulted in indirect discrimination on the basis of gender?
  4. EU case law clearly establishes that in the context of public expenditure, cost reduction is not, in and of itself, a legitimate aim in and therefore it cannot justify discriminatory measures. Here, NOMS was compelled to act within its cost budget but that budget was limited by the MoJ seemingly for the sole purpose of reducing cost. Would the outcome have been different if the probation service was run directly by the MoJ instead of through NOMS?

 

[1] Paragraph 93

[2] Paragraph 103

[3] Paragraph 99