Once a common method of redundancy selection, “Last In First Out” (“LIFO”) involves selecting employees on the basis of their service. This article explains what LIFO is, examines the discrimination risks and practical issues with using LIFO, and reviews relevant age discrimination case law.
What does Last In First Out mean?
LIFO, or Last In First Out, is a method of redundancy selection that involves selecting employees for redundancy on the basis that those with the shortest service should be selected first.
Because younger employees tend to have shorter service, there can be significant risks for employers if used as the sole criterion for redundancy selection. The risks can be lessened if used alongside other redundancy selection criteria (such as skill or performance).
“Last in first out” definition (or first in last out)
Whether used on its own or alongside other criteria, the only thing relevant for LIFO is an employee’s length of service. Employees with the least amount of service time are selected for redundancy first (or scored the highest), whilst those with a longer service time, effectively those who came into the company first, are selected last.
“Last in, first out” (or its alternative name “first in last out”, FILO) does what it says on the tin.
Legal issues with LIFO
Indirect discrimination definition
Indirect discrimination is defined in s.19 of the Equality Act 2010. According to this section, a person “A” discriminates indirectly against another person “B” where:
A applies to B a provision, criterion or practice (PCP).
B has a protected characteristic.
A also applies (or would apply) that PCP to persons who do not share B's protected characteristic.
The PCP puts or would put persons with whom B shares the protected characteristic at a particular disadvantage compared to others.
The PCP puts or would put B to that disadvantage.
A cannot show the PCP to be a proportionate means of achieving a legitimate aim.
LIFO and fair redundancy process
In order for a redundancy to be fair, the selection criteria that are used must be “reasonable”. This means that, as far as possible, criteria should be both objective and capable of independent verification.
LIFO and age discrimination
LIFO could be indirectly age discriminatory since younger workers tend to have shorter service. They would therefore be disproportionately affected by a Last In First Out policy.
This might not always be the case though – evidence would be required to show that the age profile of those selected for redundancy is not significantly different from the age profile of those in the wider workforce.
If an employer is unable to do this, it may still be able to defend a claim by showing that the LIFO criteria was objectively justified i.e. it was a proportionate means of achieving a legitimate aim.
History of LIFO
Although once a common method of selection, the use of LIFO reduced drastically with the enactment of age discrimination laws in the Employment Equality (Age) Regulations 2006 and the Equality Act 2010.
One of the first cases that discussed Last In First Out after age discrimination laws were enacted was the Court of Appeal case of Rolls Royce plc v Unite the Union. In this case, Rolls Royce sought a declaration that its use of length of service (a first in last out criterion) as part of redundancy selection was unlawful. Such a declaration likely would ensure that Rolls Royce would not later fall foul to a claim by employees regarding age discrimination. The High Court refused to issue such a declaration and the Court of Appeal upheld its decision.
A recent Last In First Out example
The more recent case of Allan v Oakley Builders and Groundwork Contractors Ltd also discussed the LIFO method. The employer, Oakley, had been clear from the beginning of Ms Allan’s employment that were a redundancy selection exercise was to occur, they would be using LIFO.
Upon the implementation of a cost-cutting exercise, one manager was informed that due to their long service they wouldn’t be selected for redundancy. Other employees were, however, grouped and Ms Allan found herself with Ms Wise and Ms Zab, the latter both being in their twenties. Ms Allan was subsequently selected for redundancy by Mr Wise, who happened to be Ms Wise’s father. Ms Allan brought an age discrimination claim.
The Employment Tribunal found that there was no such indirect discrimination, with Ms Allan’s accusation of nepotism helping them reach their conclusion.
FIFO vs LIFO
A variation on LIFO is “FIFO”: first in first out. This involves selecting those with the longest service for redundancy, rather than the shortest. FIFO, or First in First Out, brings its own legal risks.
Depending on the age demographics of the employer, the First In First Out (FIFO) method is likely to disproportionately affect older workers as they are more likely to have joined the company first, so potentially still leading to risks of indirect age discrimination.
LIFO and sex discrimination
Just as younger employees will tend to have less service, so the same applies for women. Women will tend to have shorter service than men because they have career breaks.
This means that, as well as age discrimination risks, there can also be risks of sex discrimination.
Is LIFO illegal in the UK?
It depends. LIFO is potentially indirect age discrimination because newer joiners tend to be younger, so an employer will need to show that its use of LIFO does not indirectly affect younger works and, if it does, that it is justified as a proportionate means of achieving a legitimate aim.
Using LIFO alongside other criteria
The approach suggested by the Courts seems to be that using LIFO “as part of a wider scheme of measure performance [could likely lead it to it being] regarded as reasonably fulfilling a business need” (Rolls Royce plc v Unite the Union).
Other criteria which could be utilised in a “wider scheme” are, “attendance records, efficiency at the job, experience” (see Williams v Compare Maxam Ltd).
LIFO and the need to save costs
A more contentious aim could be the need to save costs. Younger people due to their shorter service are more likely to be entitled to lower redundancy pay, thus allowing an employer to save a lot of money.
However, costs concerns alone cannot ever be grounds to justify discrimination. An employer would need to combine their need to minimise the costs of a redundancy exercise with other considerations. It is therefore important for employers to record their decision making processes.
Moreover, whilst the cost savings associated with LIFO can be beneficial, so are potential cost savings associated with keeping younger workers. Younger workers are “generally lower paid, and more productive pound for pound”.
LIFO as a tiebreaker
Where there is a tie, the last in first out criterion could potentially be used as a way of breaking it. The courts are more likely to look more favourably on LIFO being used in this way because, as a potentially discriminatory measure, it is more proportionate if applied only in this way.
Comment
Last in first out is simple, but risky (and irrational) method of selecting employees for redundancy.
If used in isolation as the sole method of selection, it is a blunt instrument that can not only mean that an employer could lose important skills from its business, but also lead to age discrimination claims. The discrimination risks involved with LIFO can be mitigated by incorporating it alongside other criteria, but then main advantage of simplicity is lost.
Redundancy exercises take place because an organisation is in trouble and needs to reshape itself for the challenges it faces. It needs to ensure that its workforce has the best skills and abilities able to meet the future challenges. More often than not, LIFO will mean that many important skills are lost. Employers should think carefully before adopting a Last In First Out method of redundancy selection.