Can costs justify indirect age discrimination? Heskett v Secretary of State for Justice

It is well established that the reason of cost alone cannot justify discriminatory action. However, costs combined with another factor, often called the ‘costs plus’ approach, might be sufficient. In the case of Hewett v Secretary of State for Justice [2020] EWCA Civ 1487, the Court of Appeal had to determine whether absence of means was the other ‘plus’ factor in order to justify discriminatory action.

Facts of the case

The Secretary of State for Justice operated a policy which limited pay increases across the public sector after the Treasury announced a public sector pay freeze. The claimant was a probation officer and argued that the policy was indirectly discriminatory on the ground of age. The policy disadvantaged younger employees, such as the claimant, as it now took significantly longer to reach the top of the applicable pay range. By comparison, his older colleagues were much closer to the top band and would earn significantly more than any younger colleagues.

Decision of the Employment Appeal Tribunal

The Employment Appeal Tribunal (EAT) concluded that the policy was objectively justified on the facts and not a breach of the Equality Act 2010. They carefully drew a distinction between an absence of means (i.e. an inability to increase pay due to external factors) and seeking to rely solely on ‘costs alone’. It was accepted that the respondent was forced to bring in the changes to the current pay system due to wider government changes, which were largely beyond their control. The need to break even and make decisions about allocation of resources can be considered an ‘absence of means’ and it is capable of justifying discrimination, whereas ‘cost alone’ is not.  

The claimant appealed to the Court of Appeal on the ground that the distinction between costs and absence of means was not valid.

Decision of the Court of Appeal

The Court of Appeal agreed with the findings of the EAT. The judges reiterated the long-established idea that cost alone cannot amount to a legitimate aim justifying discriminatory treatment. Employers cannot argue that the cost of avoiding the discriminatory measure is simply unaffordable.

The Court accepted in theory the idea of ‘costs plus’ and then considered in some detail whether absence of means could be the ‘plus’ factor. They held that an employer’s need to reduce its expenditure, and specifically its staff costs, in order to balance its books can constitute a legitimate aim for the purpose of a justification defence (see paragraph 98 of the judgment).

Analysis

Many commentators consider that the ‘costs plus’ rule is perhaps artificial and, when applied, it can lead to arbitrary reasoning. Employers are left searching for another reason to justify a measure in addition to the reason of cost. Further, in practice, it can be difficult to determine where ‘cost’ stops and another ‘factor’ starts. Taking a pragmatic approach, the Court explained that almost any decision taken by an employer will inevitably have regard to costs and it is unrealistic to disregard that factor. This is particularly true where the decision taken by the employer is in response to financial restraints, as was the case in Hewett. The court’s decision has served as a reminder to look at the employer’s aim in a more nuanced way. An employer’s need to reduce its expenditure or staff costs can be a legitimate aim, however; an aim which is solely to avoid increased costs will not be. This distinction may sometimes be subtle, but is an important one to draw.