Cap on contractual redundancy pay was justifiable

In Kraft Foods UK Ltd
v Hastie, the EAT ruled that placing a cap on a contractual redundancy scheme
which prevented employees recovering more as a redundancy payment than they
would have earned if they had remained in employment until their retirement age
was not unlawful indirect age discrimination because it was justified.

Mr Hastie opted for
voluntary redundancy under Kraft’s redundancy scheme, which entitled employees
to receive 3.5 weeks’ (uncapped) pay for each year of service. With nearly 40
years’ service, this amounted to £90,100.98 in Mr Hastie’s case. But the
maximum amount payable was capped, i.e. the total could not exceed what an employee
would have earned if remaining in employment until retirement age. Being 2.25
years away from 65, Mr Hastie’s pay was capped at £76,560. It was accepted that
the cap provision placed employees who were 2 or 3 years away from 65 at a
particular disadvantage and amounted to indirect age discrimination. The
tribunal rejected Kraft’s argument that the cap was justified in order to
prevent employees receiving a windfall.

The EAT upheld Kraft’s
appeal. The purpose of a redundancy payment is to compensate for loss of
expectation of continued employment. If the cap was not in place the
compensation payable could exceed what an employee close to retirement could
have earned had they remained employed. The cap was therefore a proportionate
means of achieving a legitimate aim and the tribunal’s rejection of the
“windfall justification” was unsustainable.

July 2010