Cummins Engine Company Ltd (“Cummins”) manufactures diesel engines for use in automotive construction vehicles. After a downturn in orders in 2008, Cummins needed to cut costs and began a redundancy program in June 2008. By April 2009, they had made 440 redundancies.
Cummins operated a contractual redundancy scheme. For employees aged 51 to 64 years, redundancy payments were four weeks’ pay for each year of service, up to a maximum of £38,733.
Mr Ormerod had commenced employment with Cummins on 2 September 1974. He was selected for redundancy in November 2008 and was ultimately dismissed. He was 63. Under the contractual enhanced redundancy scheme, Mr Ormerod was entitled to a payment equivalent to 114 weeks’ pay which took him 53 weeks past his retirement date, but he received a much lower payment.
Cummins had capped all redundancy payments so that employees could not receive more than they would have earned in gross earnings up to the date the employee reached their normal retirement age of 65. The trade unions and employees were consulted on these additional measures, but they were not agreed.
Mr Ormerod submitted claims to the Employment Tribunal for both direct and indirect age discrimination.
He claimed direct discrimination on the basis that his full contractual entitlement to four weeks pay for each completed year of service for those aged 51 to 64 was not being given to him because he was approaching retirement.
Mr Ormerod claimed indirect discrimination on the basis that the provision, criterion or practice (i.e. the decision to cap the redundancy payments made to those approaching retirement) put persons of the same age group as him at a disadvantage.
The ET’s decision
The Tribunal had little difficulty in finding that Mr Ormerod had potentially suffered direct and indirect discrimination, so focused on the potential justification arguments put forward by Cummins.
Cummins had argued that they had four potentially legitimate aims, but the only one which the Tribunal accepted related to the capping of Mr Ormerod’s redundancy payment was:
- To prevent employees receiving a windfall payment when close to retirement and therefore able to draw a pension benefit.
The Tribunal referred to the EAT in the Loxley case, which makes clear that avoiding a windfall is a potential legitimate aim, but found that in Mr Ormerod’s case the aim was not legitimate. Mr Ormerod had a clear contractual entitlement to the enhanced redundancy payment and Cummins had not advanced a clear case as to what exactly the alleged “windfall” was.
As the Tribunal found that there was no legitimate aim, the discrimination could not be justified. Nevertheless, the Tribunal looked at proportionality. The Tribunal did not consider that this was a proportionate means because it effectively amounted to a breach of a clear express term of Mr Ormerod’s contract of employment. The onus was on Cummins to persuade the Tribunal that it was proportionate and this should have involved considering the financial position of Mr Ormerod, his pension entitlement and the impact of other financial provisions.
The Tribunal found that Mr Ormerod should have been paid the maximum payment of £38,733. As he had already received a redundancy payment of £17,497, the Tribunal awarded him the difference of £21,236. The Tribunal also awarded him £1,500 for injury to feelings.
For another case dealing with employee “windfalls”, read our summary of the Woodcock case.
Mr R Ormerod v Cummins Engine Company Limited, Newcastle upon Tyne Employment Tribunal case number 2508268/09