Court of Appeal finds that employer can objectively justify age discrimination with its long-term incentive plan (Air Products Plc v Cockram, Court of Appeal)
In Air Products Plc v Cockram  EWCA Civ 346, the Court of Appeal found that an employer’s rule restricting the right to take stock options on retirement to those aged 55 years or over amounted to objectively justified age discrimination on the basis that the aim of achieving consistency between members of the employer’s defined benefit (DB) and defined contribution (DC) pension schemes was a legitimate social policy aspect of intergenerational fairness and the rule was a proportionate means of achieving that aim.
The Court of Appeal maintained that the Employment Tribunal had therefore given a properly reasoned judgment which contained no error of law so that the Employment Appeals Tribunal should not have interfered with it. The appeal was allowed and the Court of Appeal restored the decision of the Employment Tribunal dismissing the complaint of age discrimination.
The factual background of Air Products Plc v Cockram
Mr Cockram (the Claimant) worked for Air Products plc (the Respondent) from August 1988 to July 2012, most recently in a senior position as Director of Business Information.
In May 2012, the Claimant submitted a grievance regarding comments made by his line manager but the grievance was not upheld and, unhappy with the appeal outcome, the Claimant subsequently resigned from his employment citing fundamental breach of trust and confidence.
The Claimant made a claim to the Employment Tribunal claiming that he had been constructively unfairly dismissed, subjected to detriment by reason of protected disclosures and suffered age discrimination.
The Claimant’s age discrimination claim was based on Air Products’ Long Term Incentive Plan (“LTIP”), in which certain employees were offered stock options. The Claimant held “unvested options”, however, under the plan rules, these were forfeited when the employee left the company, except in certain defined situations: death, disability and retirement. Although the Claimant had retired, he did not fall within the retirement exception under the plan because for the purposes of the LTIP an employee had to retire on or after “customary retirement age” (55 or over) to fall within the exception and the Claimant had retired at age 50.
The Employment Tribunal dismissed all of the Claimant’s claims, but he appealed against the Tribunal’s rejection of his age discrimination claim to the Employment Appeal Tribunal (EAT) which allowed his appeal and remitted the case for re-hearing by a freshly constituted tribunal.
The decision of the Employment Tribunal
The Respondent accepted that the rule in the LTIP was directly discriminatory in that an employee who was over 55 years of age (unlike the Claimant) would have benefited from the retirement exception; however, the issue between the parties was whether this discriminatory effect was objectively justified and was a proportionate means of achieving a legitimate aim.
The Respondent relied on three aims which it asserted to be legitimate aims — (1) intergenerational fairness and consistency with the aim of achieving consistency between the members of the employer’s DB pension scheme (who could retire at 50 years of age) and members of the employer’s DC pension scheme (who could not); (2) rewarding experience and loyalty; and (3) ensuring a mix of generations of staff so as to promote the exchange of experience and new ideas.
The Tribunal concluded that these were legitimate aims which met a real need, and that the discriminatory provision was appropriate to achieving the aims.
The decision of the EAT
The Employment Appeal Tribunal disagreed and found that the ET had erred in law by not giving a sufficient explanation as to why the Respondent’s actions were a proportionate means of achieving a legitimate aim. The case was then taken to the Court of Appeal (CoA).
The decision of the CoA
The Claimant sought to argue that, in so far as the true aim of the minimum age of 55 to qualify for the retirement exception was to achieve consistency between the DB and DC schemes, this was not a social policy objective but an individual reasons “particular to the employer’s situation” without any social policy component.
The CoA disagreed and held that steps taken in the employer’s best interests can also concurrently form the basis of a legitimate social policy. The Tribunal had been entitled to conclude that limiting the advantage enjoyed by one age group over another was a legitimate social policy. The plan provided a balance between acting as a retention tool to keep employees with the business until the age of 55 and being an incentive for retirement in order to create opportunities for younger employees.
The CoA added that 55 was a suitable age for employees to receive company benefits given that it was in line with minimum pension age. The Employment Tribunal was deemed entitled to find the provision proportionate and the EAT should not have interfered with the decision. The Court of Appeal upheld the Employment Tribunal’s dismissal of the age discrimination complaint.
Our solicitors’ comments on Air Products Plc v Cockram
Caroline Lewis, a specialist employment solicitor at Redmans, commented on the case: “Direct age discrimination is the only type of direct discrimination which can potentially be objectively justified. The Court of Appeal has confirmed that it is open to an employer to objectively justify including ‘retirement’ as a good leaver reason in a long term incentive plan (LTIP) by reference to a specific retirement age even though doing so constitutes direct age discrimination as long as it is used to achieve a legitimate aim”.
The decision of the Court of Appeal in Air Products Plc v Cockram can be found here.