'Caps' on Severance Payments and Age Discrimination

'Caps' on Severance Payments and Age Discrimination – Labour Court overrules Equality Tribunal.

In the second major development in employment law inside four days, the Labour Court published the Recommendation in Hospira v Roper on Tuesday. In a landmark decision, the Court overturned a decision of the Equality Tribunal to the effect that caps on redundancy payments constituted indirect discrimination on grounds of age (and would only be lawful if objectively justifiable).

The complainants in the case had been employed by Hospira for periods ranging from 16-25 years and their employment contracts were terminated following Hospira's decision to close the plant in Donegal in which they worked. Hospira agreed redundancy terms with SIPTU which provided for a payment of five weeks’ pay per year of service in addition to statutory redundancy payments. However, in the case of those employees who were close to retirement age it was agreed that they would receive either the terms of the agreed package or the amount of salary that they would have earned had they remained in employment until the normal retirement age of 65, whichever was the lesser. Each of the Complainants were in an age category in which their proximity to retirement age meant that they would receive an amount equal to their potential earnings up to age 65 which, in their case, was less than the amount paid to younger workers. They complained to the Equality Tribunal, claiming that they had been discriminated against on grounds of their age.

The Equality Tribunal was satisfied that the method of calculating the redundancy package, which resulted in a “cap” on the complainants’ payment’, constituted age discrimination. He rejected the employer’s argument to the effect that section 34(3)(d) of the Employment Equality Acts expressly permitted Hospira to calculate severance payments with regard to the employee's proximity to retirement. He found that as the employer was unable to objectively justify the discrimination, the complaint should be upheld. This decision was appealed.

The Labour Court noted that the relevant EU Directive provides that Member States, rather than individual employers, can provide for differences in treatment on grounds of age where those differences can be objectively justified by a legitimate aim. The Court found that the Oireachtas had made express provision for differences in treatment based on age in respect of severance payments through section 34(3)(d). The Court stated that ‘the underlying rationale for this provision is that workers close to retirement are in a substantially different position than those who have longer periods in which they could have expected to remain in the active labour force and that, as a matter of social and labour market policy, this difference can be legitimately reflected in constructing redundancy packages... Against this backdrop, it appears that the Oireachtas considered it reasonably and objectively justifiable, within the meaning of Article 6(1) of the Directive, to provide for the differences in treatment allowed for by s.34(3)(d) of the Act’. Against that background, the Labour Court found that the method of calculating the redundancy packages in Hospira was permitted by section 34(3)(d) and overturned the decision of the Equality Tribunal.

This decision is a significant break in a recent line of authorities on the requirement for objective justification in age discrimination cases and will have implications for employers not only in relation to the calculation of severance payments, but also in the context of compulsory retirement.

If you have any queries, please feel free to contact Michael Kennedy, Michelle Ni Longain, Elaine Kelly or your usual contact at ByrneWallace.