20 July 2009

Employment news - summer: Is there any life in LIFO?

‘Last in first out' has for some time been discredited as a means of making selections for redundancy. Most employers would agree that on its own, it is a crude measure and is unlikely to leave them with the workforce they need to carry a business through a difficult trading period or a period of change.

But as the Court of Appeal has now confirmed, length of service may have a part to play in a redundancy selection matrix. After the Employment Equality (Age) Regulations (the ‘Age Regulations') came into effect in 2006, concerns arose that the inclusion of  a length of service criterion in making redundancy selections could be indirectly discriminatory on grounds of age as younger workers are more likely to be selected.  The Court of Appeal has recently tested the application of the Age Regulations in this context in the case of Rolls-Royce Plc v Unite the Union.  

Rolls-Royce and its recognized union, Unite entered into collective agreements relating to the redeployment and redundancy of employees at two factories.  These agreements were made before the Age Regulations came into force.  They recorded Unite's recognition that, in order to “enable peaceable restructuring, and a fair selection of affected employees without disruption to the business”, an assessment matrix may be used in the redundancy process.  Length of service was one of five criteria in these agreements.  

Rolls-Royce was concerned about the lawfulness of this criterion and, unusually, sought a declaration that its redundancy policy was indirectly discriminatory on the grounds of age as it favored workers with longer service. Unite challenged this, arguing both that that the policy provided an employee benefit and  that it was objectively justifiable, as it promoted loyalty and enabled the business to retain the expertise of the older workers.  

The High Court dismissed the claim, a decision upheld on appeal.  Although the Court of Appeal considered a length of service criterion to be indirectly discriminatory when used in making redundancy selections, when viewed objectively it achieved the legitimate aim of rewarding loyalty, and achieving a stable workforce by applying a fair process in redundancy selections.  As this criterion was not the sole determinative factor in making redundancy selections, but part of a wider selection matrix, the Court considered its use to be proportionate.  

The Court also considered the argument that the length of service criterion amounted to a benefit. The Age Regulations provide that benefits offered on the basis of length of service will not be discriminatory if it reasonably appears to the employer that the benefit scheme fulfills a business need.  The Court held that a length of service criterion did amount to such a benefit in that it fulfills the business need of maintaining a loyal and stable workforce. 


Employers may now use length of service as a criterion in redundancy selection with a degree of confidence. However they should take note of the comments in the case to the effect that length of service should not be the only factor or the main factor in making a decision as to whom to select. Many however will also welcome this confirmation that they can reward loyalty through use of a length of service criterion, provided they do so in a proportionate way.

Category: Article