Veitch Penny LLP - Exeter | Crediton, Devon

Case

Kraft Foods UK Ltd v Hastie
Employment Appeal Tribunal – 6 July 2010

Issues

(1) Age discrimination
(2) Contractual redundancy scheme
(3) Justification

Facts

Mr Hastie had worked for the employer ("Kraft"). In 2008 Kraft started a redundancy process, during which offers of voluntary redundancy were made. Mr Hastie had chosen to opt for voluntary redundancy under the terms of Kraft's contractual redundancy scheme. When he was eventually dismissed in December 2008 he had been working for Kraft for nearly 40 years. Under the terms of the scheme he was entitled to receive 3.5 weeks of uncapped pay for each year of service. Theoretically, this entitled Mr Hastie to £90,100.98 but a clause within the contractual retirement scheme applied a cap to the maximum amount payable. The policy stated that the total sum could not exceed the amount of salary an employee would have earned if he remained in employment until the retirement age of 65. In Mr Hastie's case he was 63 at the time of the voluntary redundancy so his payment under the scheme was capped at £76,560, a difference of about £13,000.

Mr Hastie brought proceedings against Kraft at the Employment Tribunal, arguing that the application of this cap was an act of age discrimination. Both parties agreed that the cap did have a disproportionate effect on employees who were approaching retirement but Kraft argued that this discrimination could be justified i.e. it was necessary in order to prevent employees receiving a windfall. The payment was designed to reflect the loss of earnings which an employee might incur by being made redundant.

At the Employment Tribunal it was found that the cap did have a disproportionate effect on those nearing retirement age, but also went on to find that the cap could not be justified. It felt the scheme could operate without the cap in place, noting that the £13,000 was significant to Mr Hastie but not to Kraft.

Kraft appealed the matter to the Employment Appeal Tribunal ("EAT").

Decision

At the EAT Kraft's appeal was allowed and Mr Hastie's claim dismissed. The purpose of the redundancy payment agreed was designed to be compensation for loss of "expectation of continued employment". Without a cap in place compensation would exceed what would have been received had his employment continued to retirement.

Comments

This case confirms that an age related cap on redundancy payments may be justifiable. Such schemes should be reviewed to ensure other groups are not discriminated against, e.g. using length of service as a criterion may discriminate against younger employees.