Kraft Foods UK Ltd v Hastie

In an age-discrimination challenge to a contractual redundancy scheme, a cap limiting payment to the earnings an employee could have received before normal retirement age may be a proportionate means of preventing over-compensation. The underlying purpose of a redundancy payment is compensatory: it compensates for the loss of the legitimate expectation of continued employment, even though the amount is commonly calculated by length of service rather than actual loss. A cap directed precisely to preventing payment beyond that loss is capable of being justified. The justification is distinct from arguments based on scheme costs, pension entitlement, long service or workforce management. Pension entitlement is irrelevant to the independent windfall justification.

Mr Hastie, employed by Kraft Foods for nearly 40 years, accepted voluntary redundancy under an enhanced contractual scheme. The scheme provided 3.5 weeks’ pay for each year of service, subject to a cap equal to the basic pay he would have received had he remained employed until age 65. The cap reduced his payment by about £13,600.

An Employment Tribunal held that the cap was a provision, criterion or practice disproportionately affecting employees approaching retirement and that it was not justified under the Employment Equality (Age) Regulations 2006. Kraft Foods appealed, challenging the Tribunal’s approach to legitimate aim and proportionality and alleging apparent bias. The central issue was whether preventing payment exceeding the earnings that could have been received before normal retirement age justified the cap.

1. Appeal allowed. The claim of age discrimination was dismissed.
2. Regulation 3 of the Employment Equality (Age) Regulations 2006 embodies the classic proportionality test. The tribunal must weigh the reasonable needs of the undertaking against the discriminatory effect of the measure and assess whether the former outweighs the latter. The same justification issue arose for direct and indirect discrimination.
3. The purpose of the redundancy scheme was to compensate employees for the loss of earnings which they legitimately expected to receive had employment continued. Although the payment was measured by length of service, that did not alter its compensatory character.
4. Without the cap, employees close to retirement could receive substantially more than the earnings lost through redundancy. Preventing that windfall was a legitimate aim. The cap was a proportionate means of achieving it because it prevented excess compensation with precision, arguably more accurately than a taper.
5. The Tribunal erred by treating pension entitlement as relevant to the windfall justification. That justification was independent of pension entitlement. Arguments concerning the cost of the scheme, long service, loyalty, workforce diversity and management of change were separate matters and did not justify the cap unless independently established.
6. The Tribunal’s reliance on the size of the saving was wrong in principle. Once the nature of the windfall was understood, the justification did not depend on whether the excess payment or saving was large or small. The Tribunal’s approach was contrary to the principle stated, obiter, in Loxley v BAE Systems Land Systems (Munitions & Ordnance) Ltd [2008] ICR 1348.
7. The bias ground was rejected. A tribunal may ask whether settlement is possible and express provisional difficulties, provided it retains an open mind. Robust questioning or criticism of inadequately prepared professional representatives did not cause a fair-minded and informed observer to conclude that the Tribunal would not decide the case fairly.

• Employment Appeal Tribunal: allowed Kraft Foods’ appeal from the Employment Tribunal’s decision and dismissed the age-discrimination claim.
• Employment Tribunal: upheld Mr Hastie’s claim, finding that the redundancy-payment cap was unjustified age discrimination.