This case looks at in what circumstances indirectly discriminatory measures can be justified by employers and adds an interesting and relevant twist to the principle that generally employers can’t justify such policies by arguing that they cut costs.

The Facts

Mr. Heskett worked for the National Probation Service (NPS) as a Probation Officer. Owing to the 2010 financial crash, the NPS found itself in a situation where it needed to cut costs in order to allow it to remain within budget. Therefore, it changed its promotion policy to the extent that it took employees considerably longer to move up an incremental salary scale, with the effect of it taking employees 23 years to reach the top as opposed to 7.

Mr. Heskett submitted a tribunal claim against the NPS, alleging that this change was indirectly discriminatory to younger employees who had not been able to reap the benefits of the formerly superior promotion policy.

The Law

Indirect discrimination is where a measure by an employer is not directly discriminatory (such as “I am not employing you because of your protected characteristic”), but is instead indirectly discriminatory in the sense that it inadvertently discriminates against a certain group, without intending to do so. For example, a requirement that all police officers are 6ft does not discriminate against women because they are women, but rather does so inevitably, because fewer women are 6ft than are men.

The key distinction between direct and indirect discrimination is that indirect discrimination can be justified if the provision, criterion or practice that leads to the indirect discrimination is a “proportionate means of achieving a legitimate aim”. This case centres on to what extent an employer can use the excuse of cost cutting as a legitimate aim.

The Decision

After being heard in the Employment Tribunal and EAT, the Court of Appeal had their say. They echoed the principle that the mere desire to cut costs cannot justify indirect discrimination. You cannot justify discrimination by arguing that it saves you money.

However, the desire to cut costs can play a part in establishing the “legitimate aim” defence, so long as that desire is accompanied by another legitimate aim. This is called the “costs plus” principle. In short, it recognises that the desire to cut costs can be a contributory factor to a legitimate aim, so long as it is not the only purported legitimate aim.

The question for the court in Heskett was whether the need to work within a budget and “balance the books” could be described as “cost plus”. In other words, is the need to work within a set budget because of government policy more than merely cutting costs, or is it just that and therefore incapable of justifying indirect discrimination?

The court decided that the need to “balance the books” could be described as an aim different to solely cutting costs, and therefore could be considered as a “costs plus” scenario (costs plus balancing the books).

The distinction is a fine one to the point of being indistinguishable. The only reason to cut costs is to balance the books or get the books better balanced and critics have argued that the costs plus principle is artificial. However, this judgement arguably shows us that the courts pay substantial consideration to the intention of the parties and the merits and necessities of any action in coming to their decision. Balancing the books and cutting costs are very similar. Both involve reducing expenditure. However, the former is a necessity, and the latter is often a choice. The court here were very keen to make the point that necessary business cuts may well amount to a legitimate aim, whereas spurious and self-serving cost cutting to increase profits where it is not strictly necessary, cannot.

Indeed, Lord Justice Underhill said: ‘I can see no principled basis for ignoring the constraints under which an employer is in fact having to operate. It is never a good thing when tribunals are required to make judgements on an artificial basis’.

The Ramifications

This judgement is fairly important in light of the current economic climate. In the months ahead, many employers will no doubt have to make difficult financial decisions. This judgement shows that the courts consider the intention of the parties and the overall circumstances of the case heavily. If an employer is reacting to a legitimate business need in order to balance the books and work within a tight budget, the court may well consider that as a “costs plus” scenario and thus find that the measure is a legitimate aim and therefore able to justify indirect discrimination.

What is essential however is proportionality. Any measure taken must be a proportionate means of achieving a legitimate aim, so always consider alternative action before enacting any changes to policy. Ultimately, consider whether what you are doing is absolutely necessary, or whether a different course of action may be less onerous to your employees and therefore more proportionate.