Will an employer be liable to an age discrimination claim if it makes enhanced redundancy payments?

Enhanced redundancy payments, calculated on the basis of an employee's length of service and/or age, could amount to unlawful age discrimination against younger employees. However, under para.13 of sch.9 to the Equality Act 2010, employers may operate an enhanced redundancy scheme that, on the face of it, is age discriminatory if it uses one or more prescribed options for the calculation. To be covered by the exemption, the calculation of the enhanced redundancy payment must be based on the formula for statutory redundancy payments, but the employer can adjust the calculation by:

  • increasing or removing the cap on a week's pay; and/or
  • multiplying the amount allowed for each year of service by a figure of more than one; and/or
  • multiplying the total amount by a figure of more than one.

An employer can use an enhanced redundancy payment formula that does not follow the formula above only if it can be objectively justified, ie if the employer can demonstrate that it is a proportionate means of achieving a legitimate aim. For example, in Kraft Foods UK Ltd v Hastie EAT/0024/10, the Employment Appeal Tribunal held that a redundancy payment scheme that incorporated an age-related cap on payments was a proportionate means of achieving the legitimate aim of preventing employees from receiving a windfall and was not discriminatory. Another potentially legitimate aim that employers could seek to rely on to justify the provision of enhanced redundancy payments is encouraging and rewarding loyalty.