bulletin
Last in, first out (LIFO)
7 November 2008
The current position
‘Last in first out’ is generally regarded as a safe way of
selecting for redundancy. It is objective, there is little scope
for argument and tribunals have never questioned its fairness –
that is until the Employment Equality (Age) Regulations 2006
(EEAR).
Picking on the shortest serving employees for redundancy tends
to mean it is the younger employees who go, so arguably that
amounts to indirect age discrimination.
But regulation 32 (1) states it is not unlawful age
discrimination to treat somebody less favourably in relation to a
benefit because of their length of service; except that age related
criteria which excluded someone with more than five years’ service
from receiving a benefit would need to be justified on grounds that
it fulfils a business need, for example by encouraging loyalty,
motivation or rewarding experience.
Rolls Royce decision
In Rolls Royce PLC v Unite, the employer used five criteria to
select for redundancy:
- achievement of objectives
- self motivation
- expertise/knowledge
- versatility/application of knowledge
- wider contribution to the team
plus one point for every year of continuous service
Unite wanted to retain length of service as a criterion. Rolls
Royce was worried that this might amount to unlawful age
discrimination, so they applied to the High Court for a declaration
to decide who was right.
The Court said that length of service is likely to be a fair
indicator of both loyalty and experience. It protects employees
from being put into the job market when they are likely to find it
harder to gain employment. Awarding points for service was clearly
a benefit (one of the conditions for the length of service
exemption in regulation 32 to apply) to the employees as their
employment position was more secure. It fulfilled a business need
as employee’s skills and loyalty were retained. So using length of
service as one of the criteria did not amount to age
discrimination.
But the court went on to say that using length of service on its
own (LIFO) might not have been justifiable.
So the position now seems to be that using length of service is
not age discriminatory so long as that is only one of a number of
factors; but that may not be the case if length of service is the
only factor. However, only people who are selected for redundancy
under LIFO with five years’ service or more can complain of age
discrimination, because of regulation 32 – which is not going to
happen very often.
Advice to employers
- Criteria for selection for redundancy should be objective
- Using length of service along with other criteria is almost
certainly not age discriminatory
- Employers seeking to use LIFO must demonstrate its use is
objectively justified and that the reasons pursue a legitimate aim
such as:
- encouraging and rewarding staff loyalty
- retaining skills and knowledge that have been developed over
time
Where LIFO is used as part of wider selection criteria
considering the various qualities of staff being considered for
redundancy, there is less likely to be a successful challenge if an
employer can show its use and application are justifiable.
What is proportionate and legitimate will be a question for the
tribunal. There have been very few cases where the legality of
redundancy selection criteria in relation to EEAR 2006 have been
called into question. While further judicial guidance would be
welcome, if the advice above is followed, along with a strict
consultation process, the risk to employers of a successful age
discrimination claim should be reduced.
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