New ruling lends helping hand to employers balancing budgets

2020 is likely to be a year of financial constraints and balancing budgets for many businesses. Therefore, the recent Court of Appeal decision in Heskett v Secretary of State for Justice [2020] could be good news for employers seeking to justify indirect discrimination as a biproduct of a short-term balancing budgets and need to reduce expenditure.

Mr Heskett (the Claimant and subsequent Appellant) had been employed since 2006 at the National Offender Management Service (NOMS), part of the Ministry of Justice. Following the economic recession in 2010, the Treasury introduced a pay-limiting policy, the result of which was that NOMS introduced its own pay progression scheme. At the time the Claimant joined the company, it would have taken him 8 years to progress to the top of his pay band. However, under the new policy, this timeframe increased to a period of 23 years. The Claimant brought proceedings against the agency citing that the new policy put those under 50 at a significant disadvantage.

Whilst the tribunal agreed that the new policy was indirectly discriminatory and that the Treasury’s aim was purely to save costs, NOMS had changed its policy in order to operate within its means. The tribunal therefore agreed that it was a proportionate short-term response to the decrease in funds.

On appeal the EAT agreed with the Tribunal’s conclusions, as did the Court of Appeal. Arriving at their decision, the CoA considered what is now commonly known as the ‘cost plus’ method, often used by employers attempting to justify indirect discrimination. ‘Costs plus’ has its roots in three major precedents. In 1998 the European Court of Justice held that ‘an employer cannot justify discrimination…solely on the ground that avoidance of such discrimination would involve increased costs’.

In 2005, the EAT stated that ‘economic (which includes cost) grounds can properly be a factor justifying indirect discrimination, if combined with other reasons’. Later in 2012, the CoA elaborated further, concluding that ‘considerations of cost must be admissible in considering whether a provision criterion or practice which has a discriminatory impact may nevertheless be justified’.

Employers should therefore take some comfort that the decision in Heskett v Secretary of State for Justice [2020] appears to justify a book balancing approach by employers even though the results are discriminatory. Furthermore, the ‘cost-plus’ approach is now so acutely entrenched in UK law, it is unlikely to be repealed. However, this is not an opportunity to throw caution to the wind. All decisions will be circumstantial. Employee engagement and an understanding of the impact policies or balancing budgets may have on all employees will be key to taking a reasonable and justifiable approach.