Appeal No. UKEAT/0516/08/RN

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 9 and 10 July 2009
	              Judgment handed down on 28 October 2009

Before
THE HONOURABLE MR JUSTICE UNDERHILL (PRESIDENT)
DR B V FITZGERALD MBE LLD FRSA
MS B SWITZER

MS L PULHAM & OTHERS	APPELLANT

LONDON BOROUGH OF BARKING & DAGENHAM	RESPONDENT

Transcript of Proceedings

JUDGMENT

	APPEARANCES

For the Appellant	MR JOHN CAVANAGH
(One of Her Majesty’s Counsel)
and
MS ANYA PROOPS
(of Counsel)
Instructed by:
Unison Legal Services
Employment Rights Unit 
1 Mabledon Place
London
WC1H 9AJ

For the0 Respondent	MR JAMES GOUDIE
(One of Her Majesty’s Counsel)
and 
MS TARA SHAHBAHRAMI
(of Counsel)
Instructed by:
London Borough of Barking & Dagenham Legal Services
Town Hall
1 Town Square
Barking
IG11 7LU

SUMMARY
AGE DISCRIMINATION
The Council operated a scheme rewarding loyalty and experience under which employees were paid increments if they satisfied both a length-of-service and an age criterion.  The scheme was terminated with effect from 1.4.07, but employees already in receipt of increment were allowed to retain it by way of “pay protection”.  The Claimant sought payment of increment on the coming into force of the Employment Equality (Age) Regulations 2006 on 1.10.06 but was refused.  She claimed that she had been discriminated against on the grounds of her age (a) between 1.10.06 and 30.3.07 by being excluded from the scheme and (b) from 1.4.07 by being excluded from the pay protection arrangements.

The Tribunal dismissed the claim in relation to both periods.  As regards the first period its reasoning was unclear but was either that because under the terms of the scheme employees only became entitled to payment from the 1 April following their fulfilment of both qualifying conditions no detriment occurred prior to the abolition of the scheme or that the discrimination was justified because the Council was in the course of negotiating the abolition of the scheme.  As regards the second period, it held that the limitation of the pay protection arrangements to those employees already in receipt of benefit was justified because of the cost of extending it to all persons who had satisfied the length-of-service criterion but not the age criterion and because the arrangements in question had been negotiated with the recognised trade unions.

Held:

In relation to the first period, that the Claimant could not be equated with a newly-qualifying employee and was discriminated against by being refused payment of increment with effect from 1.10.06; but that the Tribunal had either not considered the question of justification at all or had done so inadequately.

In relation to the second period, that, while pay protection arrangements of the kind adopted could in principle be justified, the Tribunal had not applied the appropriate test but (a) had attached a significance to the fact that the arrangements had been negotiated with the unions which on the evidence it could not have and (b) had wrongly treated the fact that a particular sum allocated by the Council for a different purpose had been exhausted as indicating that the Council had no funds to meet the additional costs.

Case remitted for re-hearing by a different Tribunal.

Redcar and Cleveland Borough Council v Bainbridge [2009] ICR 133 considered – Observations on the approach to the issue of justification in pay protection cases where cost is relied on – Observations on the approach to the distinction between “aim” and “means” in applying the proportionality test

THE HONOURABLE MR JUSTICE UNDERHILL (PRESIDENT)
INTRODUCTION

1.	Mrs Loraine Pulham is an employee of the London Borough of Barking and Dagenham (“the Council”).  In August 2007 she and fifteen other employees brought claims of age discrimination against the Council.  Her claim was heard as a test case before an Employment Tribunal sitting at Stratford, chaired by Employment Judge Lamb, on 13 and 14 March 2008.  By a reserved judgment sent to the parties on 8 September 2008 Mrs Pulham’s claim was dismissed; and the remaining fifteen claims were dismissed in consequence.  All sixteen employees have appealed to this Tribunal, and formally all sixteen appeals are before us.  However, in practice Mrs Pulham’s appeal has again been treated as the lead, and for convenience we will refer to her as if she were the sole claimant.

2.	Before the Tribunal the Claimant was represented by Ms Anya Proops of counsel and the Respondent (to which we will refer as “the Council”), by Mr James Goudie QC and Ms Tara Shahbahrami.  Before us, Ms Proops was led by Mr John Cavanagh QC; the Council’s representation remained the same.

3.	It will be useful at this stage to set out the relevant provisions of the Employment Equality (Age) Regulations 2006.  The Regulations were made on 3 April 2006 and (so far as relevant) came into force on 1 October 2006; but the fact that they would be made, and their broad outline, had been known for several years, since they represent the implementation of the relevant provisions of the EU Equality Directive (2000/78/EC).  Part 2 of the Regulations, and in particular reg. 7, outlaws age discrimination in the employment field: it is unnecessary to refer to the detailed provisions.  Reg. 3 defines age discrimination as follows:

“(1) For the purpose of these Regulations, a person (“A”) discriminates against another person (“B”) if – 
(a)	  on grounds of B’s age, A treats B less favourably than he treats or would treat other persons, or
(b)	A applies to B a provision, criterion or practice which he applies or would apply equally to persons not of the same age group, as B, but- 
(i)	which puts or would put persons of the same age group as B at a particular disadvantage when compared with other persons, and
(ii)	which puts B at that disadvantage,
and A cannot show that the treatment or, as the case may be, provision, criterion or practice to be a proportionate means of achieving a legitimate aim.
(2) A comparison of B’s case with that of another person under paragraph (1) must be such that the relevant circumstances in the one case are the same, or not materially different, in the other.
(3)		...”.

4.	The terms of the definition are thus substantially identical to the definitions of so-called “direct” and “indirect” discrimination familiar from other anti-discrimination legislation, with the important exception that in the case of direct as well as indirect indiscrimination the employer is entitled to advance a defence that the treatment complained of is “a proportionate means of achieving a legitimate aim” – that is, for short, a defence of justification.  Strictly speaking, a difference of treatment which can be justified does not constitute discrimination within the terms of the definition; but it is common and sometimes convenient to use the term “discrimination” in the sense of “prima facie discrimination”, i.e. so as to refer to a difference of treatment which would be discriminatory if not justified, and we will, where there is no risk of confusion, adopt that usage.  Reg. 37 provides for the so-called “reverse burden of proof” in, again, terms substantially identical to those of the other anti-discrimination legislation.  

5.	The case concerns the Council’s arrangements for encouraging the retention of employees by rewarding long service.  The history of those arrangements can be summarised as follows:

(1)	The Council for many years had schemes in place for rewarding long service – the so-called LSA/LSM schemes.  In the mid-1990s, however, it was advised that they were ultra vires, for reasons into which we need not go.

(2)	From April 1998 the LSA/LSM schemes were discontinued.  No scheme was put in place for new employees.  But it was thought right to maintain a similar scheme for those already in employment and who had enjoyed rights (whether or not accrued) under the previous schemes.  The new scheme was known as the “Local Knowledge and Experience [“LKE”] Increment Scheme” (“the Scheme”).  Under it employees would become entitled to be paid increments if they (a) had 25 years’ continuous service (“the service criterion”) and (b) had attained the age of 55 (“the age criterion”).  

(3)	It is not necessary to set out all the details of how the Scheme operated, but four features must be noted:

	(a)	There were different scales for “blue-collar” and “white-collar” employees.  On each scale there were five “levels” of increment.  An employee’s starting level depended on his or her years of service when he or she reached 55; but if it was below the maximum it increased annually thereafter until the maximum was attained.  The blue-collar scale had initially run from £30 to £150 p.a. and the white-collar scale from £200 to £1,000.  For 2006-7 those ranges had increased, in line with annual pay rises, to (in round numbers) £38-£192 and £257-£1,287 respectively.

(b)	Entitlement to payment of increment began not on the actual date that the employee first satisfied both criteria – which might, depending on their particular circumstances, be either the 25th anniversary of their employment or their 55th birthday – but on the 1 April next following that date. 

(c)	Payments of the increments were made, as the appropriate proportion of the annual figure, monthly for white-collar employees and weekly for blue-collar employees.

(d)	The increments counted as pensionable pay and thus were taken into account for the purpose of calculating pension entitlement.

(4)	In anticipation of the coming into force of legislation giving effect to the EU Directive the Council set up an “Anti Age Discrimination Policy Commission” to examine how its practices needed to change in the light of the legislation.  The Commission identified the Scheme as potentially discriminatory, no doubt on the basis that the age criterion was evidently directly discriminatory and that it was unlikely to be held to be justifiable.  

(5)	It was agreed between the Council and the relevant trade unions – being GMB/APEX, the TGWU and UNISON – that the issue of the future of the Scheme should be dealt with in the context of the negotiations then anticipated to introduce a Single Status Agreement (“SSA”).  The history behind the introduction of SSAs is well-known and need not be set out here: there is a useful summary introduction in the judgment of this Tribunal in GMB v Allen [2007] IRLR 752 (paras. 9-24 – pp. 754-5).  One of the principal aims of the introduction of SSAs was to eliminate gender discrimination in local authority pay arrangements.  It was anticipated that as part of the SSA process the Council would have to settle a number of equal pay claims arising out of past sex discrimination.  A reserve of £5.5m. was created for that purpose.

(6)	Extensive and detailed negotiations took place between the Council and the unions between January and April 2007 – although the fate of the Scheme was only one, and far from the most important, of the issues being negotiated.

(7)	On 23 March 2007 the GMB and TGWU reached agreement with the Council on the terms of an SSA, which was subsequently put to their members in a ballot and approved.  UNISON (which represented only a small proportion of the Council’s employees) was not prepared to put the agreement to its members and never signed it.  But the Council proceeded nevertheless in August 2007 to notify all employees of the terms negotiated with the two principal unions; and although not all employees were prepared expressly to accept them, no express objection was made, and it was common ground before us that at some stage thereafter those terms became as a matter of contract binding on all employees.  The SSA was treated as taking effect from 1 April 2007.

(8)	Para. 12 of the SSA as agreed with GMB and the TGWU provided that:

“Upon implementation of the Single Status Agreement, the Local Knowledge and Experience Scheme will be closed to new entrants.  Any employees in receipt of this payment at the implementation date will have their payment frozen at the current rate.”

To spell that out, the effect of the agreement was that the Scheme was abolished with effect from 1 April 2007; but employees already in receipt of increments would continue to receive those increments at their current rate, but without any further increase, for the remainder of their employment.  This was, therefore, a “pay protection” (or “red circling”) arrangement of a kind very commonly encountered where a collective agreement provides for the abolition of a contractual benefit previously enjoyed.  

(9)	The employees benefiting from the pay protection arrangements initially numbered some 86, but that number would inevitably diminish year by year; and since the employees in question were necessarily aged 55 or more no employee would enjoy the enhancement for more than ten years, and for the majority the period would be much shorter.  The number of employees who had as at 30 March 2007 satisfied the length of service criterion but not yet reached 55 was 245.  It is to be noted that some of these – including the Claimant – in fact had longer service than some of the 86.  

6.	The Claimant was born on 13 July 1956 and started work with the Council in March 1974.  She accordingly completed 25 years’ service in March 1999 and from that point satisfied the service criterion, but because of the age criterion she would not have become entitled to any increment under the Scheme until 1 April 2011.  Following the coming into force of the Regulations on 1 October 2006, there was correspondence between her union representative and the Council in which it was asserted on her behalf that the age criterion was unlawful and that she was accordingly entitled to an increment from that date; the Council’s response was somewhat equivocal but was essentially that the Claimant should await the outcome of the SSA negotiations.  Following the finalisation of the SSA, the Council’s position was, in accordance with para. 12, that since the Claimant was not in receipt of any increment under the Scheme as at 1 April 2007 she was not entitled to any payment.

7.	The present proceedings were commenced on 29 August 2007.  The claim was (and remains) supported by UNISON.  The Claimant’s case was that the imposition of the age criterion constituted direct, alternatively indirect, discrimination within the meaning of reg. 3 (1) of the Regulations.  Insofar as the claim was put as one of direct discrimination her comparison was with employees who, like her, had satisfied the service criterion but who were over 55: in other words, she was being discriminated against because she was under 55. 

THE TRIBUNAL’S DECISION AND REASONS

8.	At para. 1 of the Reasons the Tribunal sets out a full analysis of the issues which it had to determine.  As we understand it, this had been agreed at an earlier case management discussion.  It is unnecessary that we reproduce the analysis here, because several of the issues identified are not live before us, but we will refer below to particular aspects.  The Tribunal then proceeds at paras. 3-25 to make its findings of primary fact.  Insofar as it is necessary for us to refer to these, we do so in due course below.  The relevant provisions of the Regulations are reproduced at paras. 26-28.

9.	The Tribunal’s discussion of the issues begins at para. 29 of the Reasons.  At paras. 35-37 it finds that the Council’s failure to pay the Claimant any LKE increment from 1 October 2006 was on the grounds of her age: she was being treated less favourably than an employee with the same service who was aged 55 or over.  That treatment accordingly constituted direct discrimination, subject only to the issue of justification.  That finding was in truth inevitable and is not challenged before us.  Accordingly, we need not set out the Tribunal’s reasoning.

10.	As regards justification, the issue is formulated in para. 1 of the Reasons (see para. 7 above) as follows:

“If the Respondent did directly … discriminate against [the Claimant] over this period, was that discrimination nonetheless justified?  This would entail consideration of the following: 
(a)	What aim was the Respondent seeking to serve when it decided that [the Claimant] should not be treated as a qualifying member under the Scheme?
(b)	Was that aim legitimate in all the circumstances?
(c)	If the aim was legitimate, were the means used to achieve that aim proportionate in the sense of being both appropriate and necessary?”

At paras. 51-56 of the Reasons the Tribunal sets out what it understands to be the correct approach to those issues.  At paras. 53-55 it says this:

“53.	The test of proportionality requires an objective balance to be struck between the discriminatory effects of the measure and the reasonable needs of the undertaking.  The more serious the disparate adverse impact, the more cogent must be the justification for it: Hardys and Hansons Plc v Lax [2005] IRLR 726.
54.	It is for the Employment Tribunal to weigh the reasonable needs of the undertaking against the discriminatory effect of the employer’s measure and to make its own assessment of whether the former outweighed the latter.  There is no “range of reasonable responses” test in this context: Lax.
55.	The burden of proof is on the Respondent to establish justification.” 

At para. 56 it refers to the decision of this Tribunal in Redcar and Cleveland Borough Council v Bainbridge [2008] ICR 249, which is specifically concerned (in the context of sex discrimination) with the question of the justifiability of pay protection arrangements which continue a discriminatory pay differential.  The Tribunal summarises the effect of the decision in Bainbridge as being:

“… that transitional arrangements to cushion the pay of those moving to lower pay will sometimes be appropriate.  It would be theoretically possible to confer the benefit of the higher pay on everyone, but the costs may reinforce the justification limiting the benefit.  If there are costs constraints, they must be allocated in a way which limits any discriminatory impact as much as possible.  While an employer cannot defeat the right to equality by pointing to financial burdens alone, it can pray the financial burdens in aid as some support for a decision which is objectively justified on some other ground.” 

The decision in Bainbridge was the subject of an appeal to the Court of Appeal which we will have to consider in some detail below (see paras. 22-25); but for present purposes it is enough to note that the decision of this Tribunal was, in the relevant respects, upheld.  It was not suggested before us that the Tribunal’s self-direction in those passages was wrong, at least as far as it went.  

11.	Having set out the parties’ submissions at paras. 57-76, the Tribunal proceeds to its “Discussion and Conclusions”, which we must set out in full: 

“77.	The Respondent’s aim was to modify the existing scheme so as to remove the illegality from the coming into force of the age regulations.  We accept that that was a legitimate aim.  It is difficult to imagine a more legitimate aim for a local government body than to adjust to change in the law which renders an important part of its remuneration of employees unlawful.
78.	The means primarily adopted by the Respondent to achieve that aim were to put it into the negotiations upon single status.  It was clearly an entirely proper course to adopt to discuss and negotiate with the unions as the representatives of the work force what arrangements should be concluded which balanced the conflicting interests of those already in the scheme against those who were on course, in  time, to enter it.  There were conflicting interests because of the financial consequences of the options available.  
79.	We accept that the beneficiaries already in receipt of the increments as at 1 October 2006 had a continuing contractual entitlement.  It could, in theory, be taken away from them by imposing a change in terms and conditions, ultimately by dismissal and an offer of re‑engagement on different terms, if it proved impossible to reach agreement.  In the absence of the imposition in that way of different terms, the council would indeed have been likely to lose a claim for the unlawful termination of the benefits.
80.	The main alternative to abolition of the scheme, and abolition of the existing benefits, was to throw the scheme open to all, retaining the length of service criterion, without regard to age.  In our findings of fact, we have already referred to the scarcity of the evidence which enables us to arrive at a view on the costs of the alternatives available.  We can however ascertain the scale.  The minimum payment according to the schedule of payments would have been 223 x £38.48: £8,474 per annum.  The worst case outcome would have been at the £192 point on the scale, and the relevant number was 245, that would be a cost of £47,040 per annum.
81.	That cost would have clearly tended to increase.  The Claimant’s total benefits would have been much greater because of her age, and the period of time up to retirement, compared to the existing beneficiaries.
82.	We know that the council was facing very costly consequences from actual and threatened equal pay litigation.  They had put aside money for that contingency, and it was all used up.  Potentially, an additional liability would fall upon the council tax payers of the Respondent authority.  However, the money could also be made available by the outcome of the negotiations on the single status agreement.  In our judgment, the only reasonable course for the Respondents was to negotiate with the unions on all aspects of the single status agreement, leaving this particular issue as one of the elements.  They thereby arrived at an outcome which reflected the interests of the workforce as a whole, and that was appropriate and necessary in achieving the legitimate aim.  There was a finite amount of money to share out.  There were employees complaining of pay arrangements discriminatory on the grounds of sex; and others complaining of arrangements discriminatory on the grounds of age.  These were the considerations which had to be balanced, and in our judgment, the Respondents chose a course, of a negotiated outcome, which was both appropriate and necessary.  They had to be concerned not only with costs, and not only with existing contractual entitlements, but also the benefit of a negotiated outcome in terms of retaining good industrial relations within the workforce, and in the relationship between the employer and unions.
83.	The Claimant’s approach, reflected in her initial application, through her union, to be admitted to the scheme in 2006, was based upon taking the existing scheme as it was in all respects but putting a red pen through the requirement for age.  However, we accept the argument of Mr Goudie that to do so would have resulted in a scheme of a quite different character.  The Claimant’s approach was simplistic and misleading.  The necessary result of taking out the element of age was that the whole structure and costs of the scheme had to be reconsidered.  The remaining elements of it had to be reconsidered and reassembled in the light of the disappearance of that essential criterion.  It is clear that that criterion of age was part of the original negotiated agreement in 1998.  As we commented earlier in these reasons, this new law related to discrimination on the grounds of age is unique in allowing justification as a defence to direct discrimination.  It recognises the unusual nature of this particular form of discrimination, and the need, through the defence of justification, to consider the balance of the factors taken into account by the employer in seeking to find a solution for a discriminatory situation.  The elimination of the discrimination must be considered in context, and by assessment of the alternatives available to diminish the effects of the discrimination.  It was the responsibility of the unions to try to balance the interests of the members who had equal pay claims, actual or potential, and those who had age discrimination claims; and it was the responsibility of the council to recognise the union arguments but to bear in mind their fiscal and financial responsibilities as well as their legal duties: i.e. to choose the least expensive option they could negotiate.
84.	In weighing up the alternatives open to the council, we must take into account that even if the age regulations had not been introduced, the single status negotiations would have taken place.  We do not know where that would left the LKEI scheme.  It might have disappeared anyway.  This reasoning combines speculation and hypothesis, but must be confronted.  It was not inevitable that the long march of Mrs Pulham’s career would bring her to the gateway of the scheme.  By contrast, those already receiving it were definitely entitled to it.  It is not enough just to look at the numbers in the two groups.  We must also look at the relative weights of future contingencies on the one hand, and present, vested rights on the other hand.  The diminution of the discrimination involved in the scheme could result in a windfall for Mrs Pulham’s group if her challenge succeeded; or it could result in the wholesale breach of vested contractual rights, and financial hardship, for the comparator group, albeit small in number.
85.	In our judgment, the outcome enshrined in the Single Status Agreement was proportionate and the Respondents have established the justification defence.”

12.	Para. 80 refers to a previous finding about the paucity of the evidence on the question of cost.  The position about that can be summarised as follows.  The only witness called by the Council as regards the issues of substance was Christine Shepherd, the Council’s Head of Human Resources.  Her two witness statements gave no detailed evidence on the question of cost, although she gave the numbers of those benefiting from the pay protection arrangements and those who had satisfied the service criterion but not the age criterion at the relevant dates.  She added nothing in her oral evidence, save that she was apparently able to say that “most” of the 245 would have been at the top of the blue-collar scale if admitted to the Scheme.  There were no documents in the bundle showing any contemporary calculation of the costs of the different options for dealing with the LKE Scheme; but there were general figures about the amounts of the increments.  Against that background, the Tribunal observed, at para. 18, that:

“... there is no evidence that anyone focused on how many people would be affected by the scheme change, and at what costs.  If there had been such a figure, we have no doubt that Ms Shepherd would have put it before us, and yet she was unable to produce a definitive figure.” 

It then proceeded at paras. 21-25 of the Reasons to summarise such factual information as could be elicited from the material before it.

ANALYSIS OF THE REASONS

13.	The analysis in paras. 77-85 is rather diffuse and not very clearly structured.  It will be helpful if we summarise at this stage what we understand the Tribunal’s reasoning to have been.  

14.	We start with a preliminary point of some importance.  It is and has always been the Claimant’s case that she became entitled to payment of an LKE increment immediately on the coming into force of the Regulations, i.e. as at 1 October 2006.  The Scheme had not at that stage been abolished, and it was only because of the age criterion that she was excluded from payment.  Since she was a white-collar worker and had satisfied the service criterion over five years previously, she would have been entitled to about £107 per month (i.e. one twelfth of £1,280 – see para. 5 (3) (c) above).  The non-payment during the six months from that date until the abolition of the Scheme with effect from 1 April 2007 (“the first period”) is analytically distinct from the exclusion of the Claimant from the payment protection arrangement under the SSA following the termination of the Scheme (“the second period”).  The distinction between the two periods was clearly recognised in the formulation of the issues at para. 1 of the Reasons (see para. 8 above), which has separate headings for “1 October 2006–30 March 2007” and “Closure of the Scheme/Pay Protection”; and the Tribunal (at para. 67 of the Reasons) records Ms Proops’ submission that, in effect, the issue of pay protection was irrelevant because the Claimant should have been in the Scheme since 1 October and thus within the protected class (cf. paras. 48-52 below).  But that distinction between the two periods is not clearly reflected in paras. 77-85 of the Reasons. 

15.	We turn to the details of the Tribunal’s reasoning.  It starts by adopting the twofold approach which follows logically from the formulation of the proportionality test in reg. 3 – asking (a) what aim the Council was seeking to achieve, and whether that was legitimate; and (b) whether the means adopted to achieve that aim were proportionate.  That approach appears unobjectionable, since it tracks the legislative language; but we would sound a note of caution.  As Elias P observed in MacCulloch v Imperial Chemical Industries Ltd [2008] ICR 1334 (see para. 10 (2), at p. 1338 A-B), what the language of reg. 3 is intended to express is the classic proportionality test, which has been applied to resolve issues of justification in discrimination cases at least since the decision of the European Court of Justice in Bilka‑Kaufhaus GmbH v Weber von Hartz [1987] ICR 110.  The exercise required of the tribunal on such a test is: 

“… to weigh the reasonable needs of the undertaking against the discriminatory effect of the employer's measure and to make its own assessment of whether the former outweigh the latter”

- (see para. 10 (4) in MacCulloch, at p. 1338 C-D).  That exercise of course necessarily involves identifying the “legitimate aim” which the employer is seeking to achieve by taking the measure complained of – that measure being the “means”.  But the dichotomy of “aim” and “means” is not always clear-cut and the two elements can sometimes reasonably be formulated in more than one way.  In Loxley v. BAE Systems Land Systems (Munitions & Ordnance) Ltd [2008] ICR 1348 Elias P observed in relation to the justifications relied on by the employer in that case that “whether [they] are better described as aims or as proper means of achieving the aims is perhaps a matter of semantics” (see para. 37, at p. 1356C).  Tribunals need not cudgel their brains with metaphysical inquiries about what count as aims and what count as means as long as the underlying balancing exercise is carried out. 

16.	As to the question of the Council’s aim, the Tribunal at para. 77 defines it as having been to modify the Scheme in order to render it compliant with the law; and it holds, unsurprisingly, that that was a legitimate aim.  Mr Cavanagh submitted that the aim so defined, while unquestionably legitimate, cannot be said to be the aim which the Council was seeking to achieve in doing the specific things complained of – namely (a) not paying increments under the Scheme during the first period; and (b) excluding the Claimant from the pay protection arrangements in the second period.  In our view that is a fair criticism.  If the aim for the purpose of an assessment of proportionality is defined too widely it loses its value: the question must be what the employer was seeking to achieve in doing the actual thing which is complained of as discrimination.

17.	As to the question of the “means”, the Tribunal at para. 78 identifies the (“primary”) means adopted by the Council to achieve the aim defined in the previous paragraph as being to put the question into the negotiations upon single status.  That too is, with respect to the Tribunal, off-target.  The “means” with which we are concerned in this context are the particular thing or things which the Claimant complains of as discrimination.  In the present case those things are (at least in the second period) the exclusion of the Claimant from the group enjoying the protected pay arrangements.  The question is whether that (discriminatory) exclusion was proportionate having regard to the aim which it was intended to achieve.  The fact that it was (if it was) the outcome of negotiation with the unions might be relevant to that question, but it is not the “means” for the purpose of the analysis required by the Regulations.
18.	However, the fact that the Tribunal may have mischaracterised the relevant aims and means does not necessarily mean that it failed to carry out the correct exercise.  As regards the second period at least, it seems to us self-evident: 

(a)	that the Council’s aim in having some form of pay protection arrangement (given the abolition of the Scheme) was to recognise the legitimate expectations of employees who were already in receipt of a benefit under a Scheme which had been perfectly lawful when the benefit was first accorded to them; 

(b)	that such an aim was legitimate; and 

(c)	that the real question for the Tribunal (subject to the point which we make at the end of para. 19 below) was thus whether it was proportionate for the Council to seek to frame the pay protection arrangements in a way which continued, for a substantial period, a difference of treatment between employees on the grounds of age.

It is in our view adequately clear that, notwithstanding the way that it expressed itself, that was in fact the question which the Tribunal was addressing at paras. 79-85 of the Reasons.  

19.	As to that question, the Tribunal held that the continuing difference of treatment in the second period between the Claimant and the protected employees was justified.  Its reasons for that conclusion can be summarised as follows: 

(1)	The employees already in receipt of LKE increments enjoyed a legitimate expectation, embodied in a positive contractual right, that they would continue – see para. 79.

(2)	The only means of giving effect to that right without continuing the age discrimination inherent in the Scheme would have been to abolish the age criterion – see para. 80, first sentence.  (The Tribunal describes it as the “main” alternative, but it was in truth the only alternative: any half-way house, such as that in fact adopted, would mitigate the extent of the discrimination but it would not remove it.)

(3)	The cost of taking that course would have been disproportionate: see paras. 80-82.  In this respect, the Tribunal considers (a) the “scale” of the costs involved (paras. 80-81) and (b) the other demands on the relevant part of the Council’s resources (para. 82).  (We spell out the Tribunal’s thinking on element (a) in more detail at para. 20 below.) 

(4)	Against that background, a negotiated outcome under which employees already in receipt of LKE increments had those increments preserved (albeit frozen at current levels), but by which they were not extended to other employees satisfying the service criterion, was “appropriate and necessary”.  That conclusion was supported by two facts in particular – (a) that the outcome was agreed with the two principal trade unions in the context of the overall SSA negotiations (see in particular para. 82) and (b) that it was right in principle to draw a distinction between rights already enjoyed and those which were merely anticipated (see para. 84).

We would note, as a further illustration of the point made at para. 15 above, that it would be possible to express that reasoning by saying that the Council’s “aim” was to keep the Council’s wage costs as low as possible and that the issue was whether excluding “the 245” from the pay protection arrangements was a proportionate means of doing so; and the Tribunal indeed came close to putting it that way at the end of para. 83.

20.	The exercise which the Tribunal performed at paras. 80-81, in relation to the cost of extending to the 245 the same benefits as the 86, may be rather opaque if read without explanation, but it can be elucidated as follows:

(1)	If the 245 had been treated in the same way as the 86 they would have received an annual increment frozen at their notional “current level” – i.e. the level that they would have enjoyed if they had been admitted to the Scheme.  Since the amount of increment depended on (a) whether they were blue-collar or white-collar and (b) their length of service, the total cost could only be established by ascertaining the status and lengths of service of each of them individually.  Since the Council had not done that exercise, the Tribunal could not know the overall total.  In theory, as it pointed out, the figure could have been anywhere between under £10,000 (if every employee was a blue-collar worker at level 1) and nearly £300,000 (if every employee was a white-collar worker at level 5).  

(2)	However, the Tribunal noted Ms Shepherd’s evidence that “most” of the 245 would have been blue-collar and at level 5 and thus entitled to an annual increment of £192.  It calculated that if that represented the average, the annual cost in the first year would be rather over £47,000.  In fact, as we are sure the Tribunal appreciated, that figure was likely to be at or near the bottom of the bracket: in the nature of things the majority of employees on both scales would have reached level 5, from which it follows both (a) that the majority of those not included in Ms Shepherd’s “most” will have been white-collar, for whom the increments are much greater, and (b) that, of those, most would have been on £1,287.  (To illustrate the most extreme possibility, if Ms Shepherd’s “most” were a bare majority, say 125, and the balance were all employees at level 5 in the white-collar scale, the total would be about £178,500 ((125 x £192) + (120 x £1,287)).  In practice of course the majority on £192 might be more numerous, and there would certainly be some blue- and white-collar employees at lower points on their respective scales.)

(3)	That is the cost in the first year.  Even if it had been accurately quantified for that year, the cost in future years could not be known save in very broad terms because, although the individual amounts had been frozen and would not change, the total number of employees benefiting would depend on how many, and at which level, left the Council’s employment.  That would be unpredictable, though no doubt some projections could have been made.  All that could be said for certain is that the cost would continue for much longer than in relation to the 86, all of whom were by definition already 55 or over: the 245, by contrast, might be any age from 41 to 54.  Thus the increment might have to go on being paid, though probably only for a handful of employees, for nearly twenty years more.  This is the point being made in para. 81.

It needs to be appreciated that the Tribunal was not purporting to make any kind of costs calculation or even to reach a reliable estimate.  The figure for the first year of £47,000 was not – as, again, we can be sure the Tribunal appreciated - a reliable estimate, since, even if the very imprecise evidence of Ms Shepherd that “most” of the 245 would be entitled to £192 p.a. if admitted to the Scheme were accurate, it could not safely be assumed that that figure was an average (and indeed, as noted above, the true figure was likely to be higher).  Rather, it was simply seeking to establish that the “scale” of the costs of admitting the 245 to the Scheme would be substantial, both in the first year and thereafter.
OVERVIEW OF THE ISSUES ON THE APPEAL

21.	It might seem logical to start by considering the justifiability of the denial of LKE increments to the Claimant in the first period.  However, we have found it easier to start by considering what the position would have been if the Scheme had been abolished, and the pay protection arrangements introduced, on or before 30 September 2006 – i.e. no later than the coming into force of the 2006 Regulations.  On that basis, we propose to consider (A) whether, as a matter of principle, the pay protection arrangements in the present case were capable of justification; and, if so, (B) whether the Tribunal’s conclusion that they were in fact justified was open to it in law.  We will then be in a position to consider – (C) - the effect of the fact that the Scheme remained in force until 31 March 2007.  However, it is convenient to consider by way of preliminary the decision of the Court of Appeal in Redcar and Cleveland Borough Council v Bainbridge [2009] ICR 133, which is relied on by the Claimant in relation to aspects of both issues (A) and (B).

PRELIMINARY:  BAINBRIDGE

22.	The judgment in Bainbridge as reported covers not only the appeal in Bainbridge itself (and another appeal from a different decision between the same parties) but also an appeal from the decision of this Tribunal in Middlesbrough Borough Council v Surtees [2007] ICR 1644 which raised similar issues.  When we need to refer to the two cases separately we will do so as “Redcar” and “Middlesbrough”.  In both cases the local authority employers had entered into SSAs incorporating pay protection arrangements under which, for a limited period, employees were allowed to retain benefits enjoyed under the old pay system.  The female claimants claimed the benefit of those pay protection arrangements under the Equal Pay Act 1970.  In Redcar the council had as at the date that it concluded the SSA already conceded that the benefits in question constituted indirect sex discrimination (of the Enderby type); and the claimants said that it followed that the pay protection arrangements, which simply continued those benefits (albeit for a limited time), were also discriminatory.  In Middlesbrough no such concession had been made.

23.	In both cases the council contended that, whatever the justifiability of the benefits under the old system, their temporary continuance by way of pay protection could be justified on the basis that they represented legitimate transitional arrangements to cushion the impact of their withdrawal on existing employees.  It is necessary to set out separately how that defence fared in the two cases:

-	In Redcar the employment tribunal rejected the defence.  This Tribunal found that the employment tribunal had misdirected itself; but it considered the justification issue for itself and came to the same conclusion.  In the course of his discussion of the issue Elias P. observed, at para. 163 (p. 281), that:

	“It may be that different considerations would apply in other cases, for example where employees do not even raise a right to equal pay until after the implementation of the pay protection scheme.  If the employer can show a carefully crafted and costed scheme negotiated for the purpose of cushioning the effects of a drop in pay and without any reason to suppose when it is implemented that this would have discriminatory effects, then it may be that he could demonstrate objective justification. The argument would potentially be reinforced if the costs of retrospectively conferring these additional benefits on the women were significant. But that is not this case; it is an argument for another day.”

Those observations were, explicitly, unnecessary to the reasoning; but we set them out here because they – and in particular the alluringly alliterative phrase “carefully crafted and costed” - are heavily relied on in the present appeal.  
-	In Middlesbrough the employment tribunal also rejected the defence.  It found that, although at the time that it entered into the SSA the council had not accepted that its previous pay arrangements were discriminatory, it should have appreciated that there was a real risk that that would be held to be the case: see the Court of Appeal’s summary of the reasoning at para. 148 (p. 180 D-E).  Against that background the tribunal held that:

“[a]lthough … a period of protection of previously discriminatory pay, limited in time in order to phase it out, would be a legitimate aim, it had not been shown that this scheme was an appropriate and proportionate means of achieving that objective when the size of the disadvantaged group and the cost of including or excluding that group had not been calculated.”

(see, again, the Court of Appeal’s summary of the reasoning at para. 149 (p. 180G)).  In that connection it attached particular weight to the fact that the pay protection arrangements had not been “carefully costed and crafted” - picking up this Tribunal’s language in Redcar (see above): indeed they appeared not to have been costed at all.  That decision was overturned by this Tribunal, again presided over by Elias P., which held that the only correct conclusion on the facts as found was that the council had established a justification defence.

24.	The Court of Appeal held that in both cases the decision of the employment tribunal was unimpeachable, and in the case of Redcar it added that the decision was plainly correct.  It also endorsed the reasoning of this Tribunal in Redcar on the question of justification (albeit that it held that that reasoning had been unnecessary because the employment tribunal had not in fact misdirected itself).  The Court of Appeal’s reasoning is very lengthy, and we need not set most of it out here.  We should however summarise the points which are relevant for present purposes:

(1)	In any case where the existence of past direct discrimination has been “recognised”, the continuation for the future of such discrimination in the form of transitional or phasing-out arrangements cannot be justified: see para. 129 of the judgment (pp. 175-6), applying the decision of the European Court of Justice in Smith v Avdel Systems Ltd  [1995] ICR 596.  The removal of such discrimination must be “immediate and full”. 

(2)	By analogy, the position is the same as regards transitional arrangements which continue recognised past indirect discrimination: see the first part of para. 133 (p. 176 F).  

(3)	However, in circumstances where transitional arrangements are in place which continue, to some extent, features of a previous regime which are subsequently held (or recognised) to have been discriminatory, a “more flexible principle” should apply, and the continuation of such arrangements may be capable of justification: see the second half of para. 133 and para. 134 (pp. 176-7).  The tribunal will need to apply the proportionality test, but in doing so it will be relevant to consider whether the employer had any reason to think that the arrangements might be discriminatory: see in particular the final sentences of both para. 133 and para. 134 (pp. 176H and 177B).  As the Court summarised it, at para. 135 (p. 176 B-C):

	“We think that the Redcar appeal tribunal [2008] ICR 249, para 163, was right when it said that there will be circumstances in which an employer will be able to justify a pay protection scheme which is in fact discriminatory if, when he implemented it, there was no reason to think that it would be discriminatory.”

(4)	The employer in Redcar, having made the concession that it did (see para. 22 above), knew or ought to have known at the time that it entered the SSA, incorporating the pay protection arrangements, that its previous pay system was discriminatory in the relevant respects: in other words, the discrimination was “recognised”.  That being so, both the employment tribunal and this Tribunal were right to hold that the transitional arrangements could not be justified, and the claimants were entitled to the benefit of the pay protection provisions: see paras. 136-140 (pp. 177-8). 

(5)	In Middlesbrough the employer had at the material time made no such concession, and the case could not be treated as one of recognised discrimination.  Accordingly the tribunal had to consider the proportionality issue.  As to that issue, the Court of Appeal reversed the decision of this Tribunal that the employment tribunal’s reasoning, as summarised at para. 23 above, was flawed and held that its conclusion was legally open to it: see paras. 169-171 (p. 186).

25.	Although that was enough to dispose of the appeal, the Court of Appeal made some observations on the reasoning of this Tribunal in deciding that Middlesbrough’s pay protection arrangements could be justified.  It quoted from that reasoning at para. 172 (pp. 186-7) as follows: 
"We consider that, given that the purpose of the scheme was to cushion employees from the potentially disastrous effects of a sudden drop in pay, [Middlesbrough] was entitled to take the view that it should limit the benefit to those actually in that group and to exclude all others even if some of them ought to have been in the group. Unless the pay was actually being received, there was nothing to protect. We think that is itself sufficient justification, but it is reinforced by the fact that the need to reach a protected pay arrangement, with the agreement of the unions, was crucial to the making of the job evaluation scheme. Any assessment of future costing would inevitably be highly speculative and would undermine the ability to obtain agreement for the scheme."

As to that, it commented, at para. 173 (p. 187B):
“We would accept that, if the appeal tribunal had been the tribunal of first instance, it would have been entitled to decide the issue of justification in that way. However, it was not and that passage must be treated with reserve.”
The Court then went on to criticise a later observation of this Tribunal to the effect that “all schemes of this nature” were likely to be justifiable: see paras. 174-7 (pp. 187-8).  It  recognised that “it will be possible for an employer to justify the continuance of indirect sex discrimination through the discriminatory application of a pay protection scheme” (see para. 177).  More specifically, it said (at para. 175):
“We accept that a large public employer might be able to demonstrate that the constraints on its finances were so pressing that it could not do other than it did and that it was justified in putting the need to cushion the men's pay reduction ahead of the need to bring the women up to parity with the men.”

But it emphasised that that would not be so as a matter of course.  Each case would have to be carefully evaluated by the employment tribunal by reference to its particular facts.

(A)	WERE THE PAY PROTECTION ARRANGEMENTS CAPABLE OF BEING JUSTIFIED?

26.	If the reasoning in Bainbridge were directly applicable to the present case it could be said that any attempt to justify the pay protection arrangements embodied in para. 12 of the SSA should be dismissed in limine.  The age discrimination which those arrangements continued was clearly “recognised” at the time that they were introduced: it is true that there had been no relevant finding of a court or tribunal, but the age criterion was on its face prima facie discriminatory and the Council had never suggested that it could be justified: indeed its own “Commission” had recommended its abolition.  The case falls squarely – subject to the point which we discuss below – within the principle stated in Smith v Avdel: elimination of recognised discrimination must be immediate and full, and transitional or phasing arrangements cannot be justified (see para. 24 (1)-(2) above).  We do not believe that this argument was run below, and it does not feature in the Claimant’s Notice of Appeal or Mr Cavanagh’s skeleton argument.  However, it surfaced in the course of the oral submissions and we think that we need to deal with it, if only so that we have firm ground beneath our feet in considering the issues which follow.

27.	As Mr Goudie pointed out, there is one obvious and fundamental distinction between the present case and Bainbridge (and Smith v Avdel), namely that sex discrimination has been unlawful for thirty years whereas the age-discriminatory features of the Scheme which the pay protection arrangements continued were perfectly lawful until the day before the arrangements were put in place.  Thus, while there are clear policy reasons why an employer who has failed to correct unlawful discrimination for many years should not be given further time to do so, that is not the present case.  It is true that employers have been able to see the Regulations coming for some years (though in fact their final form was not settled until quite late), and could, if they chose, have sought to remove discriminatory practices in advance; but there is still a difference in principle between the binding obligation to comply with existing law and the purely prudential obligation to prepare for anticipated law.  And, in any event, even if an employer had chosen to withdraw age-related benefits in, say, 2004, the unfairnesses which pay protection arrangements were designed to mitigate would not necessarily simply disappear as at October 2006: if cushioning was required at all, it might continue to be required for several years.  We can see no reason why an employer faced with the coming into force of the Regulations should be absolutely disentitled to incorporate an element of pay protection into the adjustments necessary to conform to the new law, notwithstanding that that will of its nature involve a degree of continuing discrimination.  Since all kinds of age discrimination can in principle be justified there is no reason to treat discrimination occurring in this particular way any differently.  And it would be strange if employers in this situation were in a worse position than employers seeking to justify the continuation of past “unrecognised” but unlawful sex discrimination: see our summary of Bainbridge at paras. 24-25 above.

28.	Mr Cavanagh submitted that such a conclusion would be inconsistent with the decision of this Tribunal in Snoxell v Vauxhall Motors Ltd [1977] ICR 700.  In that case employers were held not to be entitled to rely, under s. 1 (3) of the Equal Pay Act 1970, on pay protection arrangements because the differentials which they continued were rooted in past sex discrimination – notwithstanding that the discrimination in question pre-dated the coming into force of the Act.  Snoxell was considered by the Court of Appeal in Bainbridge: see paras. 73‑76 (pp. 160-2).  It commented that the analysis pre-dated the development of the modern law of discrimination and that in at least one important respect it went too far.  We do not think that it is necessary or profitable for us in those circumstances to seek now to analyse the detailed reasoning in Snoxell.

29.	There is therefore no threshold answer to the justification case.  It was open to the Council – as to the council in Middlesbrough – to seek to justify the continuation of past discrimination in the form of transitional pay protection arrangements.  It is of course a different question whether the justification was made out in the present case: that is what we consider in the following section.  
(B)	JUSTIFICATION

ALLEGED ERRORS OF PRINCIPLE IN THE TRIBUNAL’S APPROACH

30.	Mr Cavanagh advanced a number of reasons why it was not open to the Tribunal in law, on the evidence before it, to find a defence of justification proved.  We consider them in turn.

31.	First, he relied on the Tribunal’s finding that the Council had made no contemporary (or indeed subsequent) assessment of the additional costs of extending LKE benefits to those who had satisfied the service criterion but not the age criterion – “the 245”.  He submitted that it was the effect of Bainbridge that, as a matter of law, an employer could only advance a defence of justification in a case of this character if the pay protection arrangements in question had been “carefully costed and crafted” at the time of implementation: he said that that followed from the Court of Appeal’s approval of the decision of the employment tribunal in Middlesbrough, which had in turn followed the observations of this Tribunal in Redcar, where that phrase had been used.  The Tribunal’s own findings demonstrated that there had been no such careful crafting and costing in the present case.  It necessarily followed that justification could not be established.  

32.	We do not accept that submission.  Appellate courts and tribunals have on very many occasions deprecated attempts to pick up particular phrases and elevate them to the status of a universal touchstone for answering a question posed by statute in other terms.  Nowhere in Bainbridge does the Court of Appeal prescribe the use of the “carefully crafted and costed” formulation in all cases of this type, as opposed to simply approving the particular reasoning of the Middlesbrough tribunal.  It would in fact be wrong in principle to exclude a defence of justification on the basis that the employer had not himself articulated or recognised the matters relied on at the time that he did the act complained of: see Health and Safety Executive v Cadman [2004] IRLR 971 (per Maurice Kay LJ at para. 28 (pp. 976-7)), Schönheit v Stadt Frankfurt am Main [2004] IRLR 983 (para. 87 (p. 991)), British Airways plc v Grundy (no. 2) [2008] IRLR 815 (per Sedley LJ at para. 13 (p. 819)), and Seldon v. Clarkson Wright & Jakes [2009] IRLR 267 (per Elias P at paras. 46-50 (pp. 273-4).  The evidential weight to be given to attempts at retrospective justification is another matter.  The fact that a justification is produced long after the event may entitle a tribunal to treat it with some scepticism, but even that must depend on the circumstances of the particular case.

33.	Secondly, Mr Cavanagh submitted that even if such after-the-event calculations were permissible in principle, it was wrong for the Tribunal to attempt to perform them itself, as it did in paras. 80-81 of the Reasons.  It was the Council’s job to provide evidence on costs, and if it had not done so it had to take the consequences.  We do not accept that submission either.  It is frankly surprising that the Council did not seek to put before the Tribunal a detailed estimate, with appropriate supporting evidence, of the additional costs of extending LKE benefits to the 245.  But the Tribunal’s primary business was not to punish the Council for defects in its preparation but to consider what (if any) conclusions it could properly reach on the evidence which was, however unsatisfactorily, before it.

34.	It is a separate question whether the exercise done by the Tribunal did indeed produce any worthwhile conclusions.  We did not in fact understand Mr Cavanagh to contend – separately from the two submissions considered above - that the conclusions reached by the Tribunal, and explained by us at para. 20 above, were wrong so far as they went; or that they were incapable of contributing anything to the assessment of justification.  In our view they were indeed of some value.  Although it is always desirable that in assessing cost for the purpose of a justification issue a tribunal should be provided with the best information reasonably available, the outcome will in many cases not be dependent on being able precisely to quantify the costs in question.  What is required will depend on the particular issues; but it will sometimes be the case that a sufficient assessment can be made by reference to the broad scale of the costs, without needing to know their precise amount.  Indeed precision will often be impossible, particularly where the anticipated costs will continue far into the future.  In the present case it would certainly have been better for the Tribunal to know where in the bracket between £47,000 and £178,500 the cost of extending LKE benefits to the 245 in the first year lay.  But it was still significant for it to know that the figure lay somewhere in that bracket; that the cost would have continued, though at a gradually diminishing rate, for many years; and thus that the cost of extending the benefit to 245 employees aged from 41-55 was likely to be several times higher than the cost of restricting it to 86 employees all aged 55 or more.  

35.	Thirdly, Mr Cavanagh submitted that it was wrong in principle of the Tribunal to distinguish – as it did at para. 84 of the Reasons - between the positions of the 245 and the 86 simply on the basis that the latter were already in receipt of payments.  Both, equally, had had contractual rights to payment under the Scheme once they satisfied its criteria; and in consequence both had an expectation of payment such that they would feel a legitimate sense of grievance if the right were removed: it was arbitrary to make a distinction on the basis that those rights had not yet crystallised into an actual entitlement to payment.  We do not accept that criticism.  While not everything said in para. 84 may have been perfectly worded, we agree with the Tribunal that there is a legitimate distinction between benefits presently enjoyed and benefits to which an employee may have a right in the future but the accrual of which may yet be affected by many contingencies.  Part of the reason is that employees already in receipt of a benefit may have committed themselves to a pattern of expenditure on the basis that it will continue, whereas those not yet in receipt will not have done so.  But there is a wider point that it is common industrial experience that the removal of an existing benefit is perceived as more unfair than the loss of a benefit which is merely prospective: that is, after all, the perception on which the well-established practice of red circling is based.  We do not wish to be misunderstood.  We are not saying that such a distinction will be appropriate in every case.  We also accept that the prospect of an increment which will affect pensionable pay may be particularly significant.  We say only that there was nothing wrong in principle in the Tribunal taking the distinction into account.

36.	Fourthly, Mr Cavanagh submitted that it was perverse of the Tribunal to accept that the perpetuation of the age-based difference of treatment between the 86 and the 245 could be justified.  To some extent this submission merely repackaged points already made in their own right – particularly the paucity of evidence about cost and the absence of any legitimate distinction between those already in receipt of a contractual benefit and those to whom it had not yet accrued.  But he also emphasised that the pay protection arrangements were directly discriminatory and that they were “indefinite” in duration.  As to their being discriminatory, the Claimant and the others in her position had themselves all done 25 years’ service and were thus in an identical position, apart from their ages, from those already in receipt of benefit: some of the former will in fact have had longer service than some of the latter.  As to their being “indefinite”, his point was that this was not a time-limited or tapering arrangement.  The 86 would continue to draw increments until they retired, and would benefit from them thereafter to the extent that they produced a higher level of pension.

37.	We do not accept that the Tribunal was bound on the facts before it to find that the exclusion of the 245 from the pay protection arrangements was unjustifiable.  The point that the arrangements were directly discriminatory does not advance the argument.  It is in the nature of such transitional arrangements that they will continue, for a time and to some extent, unlawfully discriminatory arrangements (albeit that they were lawful at their inception): that is why they need to be justified.  But, if, as we have held (see head (A) above), such arrangements are capable in principle of being justified, merely emphasising that they are indeed discriminatory goes nowhere.  Perhaps all that Mr Cavanagh meant was that the Tribunal should not lose sight of the starting-point of the whole exercise, namely that the arrangements were unlawful unless justified.  If so, we agree.  But that does not assist in founding a perversity argument.  As to the arrangements being indefinite, that is indeed in one sense true, and the impact of the discrimination through into pension is a significant factor to put into the balance.  But in another sense the arrangements were likely to be much more short-lived than many such red circles: all those already in receipt of the increment were 55 or over, many would be on the point of retirement and most would be gone within five years.  Again, we do not wish to be misunderstood.  We express no view ourselves as to the weight to be given to this factor.  We say simply that it was not of such weight that there was only possible answer to the justification issue.  

38.	Thus far, we think that the Tribunal’s reasoning can be sustained.   The factors to which it had regard were legitimate, and we do not accept that there was any feature of the case that compelled the rejection of the justification defence.  However, we see much more force in Mr Cavanagh’s challenge to the way in which the Tribunal set about assessing the factors in question.  Two (related) points concern us in particular – (1) the reliance placed by the Tribunal on the fact that the protected payment arrangements were negotiated with the unions; and (2) the importance placed on the fact that the Council had exhausted its reserve of £5.5m.  

(1) 	NEGOTIATION WITH THE UNIONS

39.	It was an essential element in the Tribunal’s conclusion on justification that the eventual form of the pay protection arrangements was embodied in para. 12 of the SSA, and thus represented the outcome of a negotiation between the Council and the two main unions.  That aspect is returned to repeatedly in paras. 82-85 of the Reasons (and see also para. 78).  In our view the weight attached by the Tribunal to this factor amounts to a misdirection.  There are essentially two points.

40.	First, while a tribunal is certainly entitled to have regard, in assessing the justifiability of a discriminatory measure, to the fact that it has been negotiated with the representatives of the workforce (see Paliacos de la Villa v Cortefiel Servicios SA [2009] ICR 1111 - and Loxley (above), at paras. 42-43 (pp. 1356-7)), it cannot abdicate the responsibility of itself carrying out the necessary proportionality exercise.  We fear that that is what has happened in this case.  The essence of the reasoning in para. 82 is that it had, in the Tribunal’s judgment, been reasonable for the LKE issue to be folded into the SSA process, and that since para. 12 of the SSA represented the outcome of that process it must be taken to be “appropriate and necessary”.  We would ourselves be disposed to question whether it was in fact reasonable to roll up the LKE issue with the questions being dealt with in the SSA negotiations.  The issues would not seem to have had anything in common, and by treating them as linked the Council and the unions ran the risk, not simply that they might be given insufficient separate consideration, but also that the interests of those who stood to lose by the abolition of the Scheme were unfairly sacrificed in order to assist in the achievement of an overall settlement.  However, that is ultimately a question of fact, and if the Tribunal’s decision on that aspect had been fully reasoned it might have been unchallengeable.  The real point is that the fact that para. 12 of the SSA was the outcome of negotiation did no more than (potentially) constitute evidence that the proportionality test was satisfied.  It could not be regarded as in itself conclusive.  It was ultimately for the Tribunal – not the Council or the unions – to decide whether that outcome represented a fair balance between the reasonable needs of the Council and its undoubtedly discriminatory impact.  We can see no evidence in these paragraphs that the Tribunal ever performed that assessment.

41.	Secondly, there was in fact no satisfactory evidence before the Tribunal that the Council and the unions had given any consideration to the justifiability of excluding the 245 from the protected pay arrangements.  It was the Claimant’s case, on the basis of the evidence of Harry Lister, the responsible UNISON official, that there had been no negotiation at all on the future of the LKE Scheme and the issue of pay protection.  Ms Shepherd’s evidence was that the issue had indeed been discussed; and the various drafts of the SSA show changes in what became para. 12 which would appear to reflect a refusal on the part of the unions to agree to the outright abolition of the Scheme.  The Tribunal does not purport to resolve that difference.  But even if Ms Shepherd was right – as she may well have been, since Mr Lister may not have had full knowledge of what was discussed with the other unions – she does not suggest that there was discussion of anything save the alternatives of outright abolition on the one hand or pay protection for those already in receipt of benefit on the other: specifically, there is no evidence of any consideration of the position of those who had satisfied the service criterion but not the age criterion.  In the absence of such evidence “union negotiation” is a factor of little or no weight in deciding whether the outcome reached struck a proportionate balance between the Council’s needs and the discriminatory impact on those employees.  

(2)	THE £5.5m. RESERVE 

42.	In the course of para. 82 the Tribunal refers to the fact that the £5.5m. reserve allocated to meeting historic equal pay claims (see para. 5 (5) above) “was all used up” and to there being “a finite amount of money to share out”.  It is not clear whether it was treating those facts as decisive.  If so, that was plainly a misdirection.  Employers cannot automatically justify a failure to eliminate discrimination by allocating the costs of doing so to a particular budget and then declaring that budget to be exhausted: any such allocation was their own choice, as was the size of the budget, and plainly they cannot be permitted definitively to limit the extent of their own obligations by the choices that they make.  The position is a fortiori here since the relevant budget had originally been intended purely to cover the cost of historic equal pay claims (as the Tribunal expressly found at para. 16 of the Reasons) and there is no evidence that anyone ever considered whether extra funds should be allocated to cover the costs of age discrimination claims, which have – as we have already observed – no inherent linkage with the issue of equal pay.

43.	It may be that the Tribunal did not intend to treat the fact that the £5.5m. budget was exhausted as decisive and meant no more than that it was a relevant factor.  If so, that would be unexceptionable in principle.  We accept that it would be wrong, however tempting, to take the view that a cost in the bracket £47,000-£178,000 is too trivial in the context of the Council’s overall resources to constitute the basis of a claim of justification: the question of proportionality arises in the case of employers with deep pockets as well as those with more limited resources, and tribunals have to attempt to put particular figures in a context.  We also therefore accept that for that purpose the size of relevant budgets must be a useful benchmark, though it cannot be determinative.  But even on this basis the reliance placed by the Tribunal on the exhaustion of the £5.5m reserve is highly questionable in view of the fact that it was intended for a wholly different purpose.

44.	We would add that, while we have held above that the paucity of the evidence of the cost of including the 245 in the pay protection arrangements was not by itself fatal to the defence of justification, it reinforces the case that the Tribunal’s exercise – so far as it performed it at all - was inadequate.  It was seeking to assess the weight to be given to a cost which could have been anywhere between £47,000 and £178,500 in the context of an overall budget about which it had effectively no information at all.

CONCLUSION  

45.	For the reasons given above we believe that the Tribunal’s consideration of the issue of justification was legally flawed.  The issue will have to be remitted for reconsideration by a different tribunal: in our view the Claimant would be entitled not to be confident that the same tribunal could approach the issues with a wholly fresh mind.  

46.	We hope that the tribunal conducting the fresh hearing will be assisted by our reasoning on the issues which we have decided en route to our conclusion.  We would only add this.  The task of any tribunal in attempting to weigh the discriminatory impact of a particular measure against the cost of eliminating that impact is not an easy one, particularly since there is no objective measure common to both elements in the equation.  Nevertheless, tribunals are required to use their experience and common sense to make a fair judgment.  For that purpose they need to be given sufficient information both about the discriminatory impact on the claimants and about the alleged costs and the financial background against which the affordability of those costs falls to be judged.  The parties should ensure that that occurs.  That does not mean that the tribunal should be invited by either party to embark on an exhaustive review of the Council’s finances, or, more specifically, its wage bill: the broad picture will suffice.  But it will need a lot more help than was given first time round. 

A FURTHER POINT

47.	A further challenge advanced by Mr Cavanagh was that the Tribunal failed to deal with a contention raised by the Claimant that the Council could have eliminated discrimination at a much lower cost by adopting some kind of tapering: that is, the 245 would have been paid the LKE payments with immediate effect, but the pay protection arrangements for all could have been wound down over a period of years.  On the face of it that challenge was well-founded, since although the Tribunal refers to the point in its summary of the Claimant’s submissions (see para. 74 of the Reasons) it nowhere seeks to address it.  But, in view of the fact that the case is to be remitted in any event, we need not consider this aspect further.  

(C)	THE FIRST PERIOD: 1 OCTOBER 2006 TO 30 MARCH 2007

48.	To repeat, the point about the period from 1 October 2006 to 30 March 2007 is that the LKE Scheme remained in force, and the Claimant was, on the face of it, excluded from benefits under it by reason of the age criterion: none of the arguments about pay protection considered above arise – or at least not directly.  As we have already noted, the Tribunal in the Conclusions section of the Reasons makes no clear distinction between the first and second periods, and we should accordingly remit the claim in relation to this period also unless it is clear either that it must succeed or that it must fail.

49.	Mr Goudie submitted, as he did to the Tribunal, that any claim in relation to the first period must fail because, under the terms of the Scheme, employees who satisfied both criteria only became entitled to payment of increment from the following 1 April (see para. 5 (3) (b) above): thus, he submitted, there could be no act of discrimination – or, rather, no discriminatory omission - until 1 April 2007, by which date the Scheme had been terminated.  We do not accept that submission.  The Claimant had first satisfied the service criterion as long ago as March 1999; and in our view she suffered less favourable treatment by not receiving the appropriate increment as from the first pay day after the Regulations came into force.  Her position could not be equated to that of a new entrant who had first satisfied both the criteria in the course of the current year.

50.	The only question is thus whether the withholding of increment from the Claimant during the first period could be justified.  Mr Goudie submitted that it could be.  The Council had reached a clear decision in principle prior to 30 October that the Scheme would be abolished.  The only question was what, if any, pay protection arrangements would be put in place, and that question was, and was known to be, the subject of negotiations with the trade unions which would be concluded by the end of March 2007.  It was justifiable to hold back from putting any more employees into the Scheme in order to avoid prejudging the outcome of those negotiations.  A similar argument was clearly advanced before the Tribunal (see paras. 11-13 of the Council’s supplementary closing submissions); but it is not clearly addressed in the Reasons.  We rather suspect that, though it nowhere explicitly says so, the Tribunal accepted the Council’s submission that no liability could arise until 1 April 2007, and believed that in that case the question of justification did not arise.  But it may be that the finding, made at para. 78 and repeated in para. 82, that it was reasonable for the Council to fold the issue of the fate of the LKE Scheme into the SSA negotiations is meant to encompass a finding that it was reasonable also to withhold payment of benefit to new entrants pending the outcome of those negotiations.  Whichever the true reading, however, the Tribunal either failed to consider the point altogether or did so in so opaque a fashion that its reasoning cannot be said to be adequate.  

51.	The claim in relation to this period also must therefore, unless the answer is clear, be remitted to the Employment Tribunal for the issue of justification to be determined.  At first sight it seems surprising that the Council could justify discriminating against the Claimant now on the basis that it was planning to stop doing so soon.  But the point was not very fully argued before us, and we do not think it would be right to prevent the Council from seeking to persuade a tribunal that in the particular circumstances of this case, as urged by Mr Goudie, it would be so unsatisfactory to start to pay an increment which it was in the middle of negotiating to take away that the withholding could be justified.

52.	If in the end it were held that the Claimant was entitled to receive payment of the increment during the first period, that would, as we have trailed above, potentially impact on the arguments in relation to the second period.  A central part of the Council’s defence is the distinction which it seeks to make between those employees who were already in receipt of the LKE increment and those who had no more than a contingent right: see para. 35 above.  Mr Cavanagh submitted that even if that distinction was acceptable in principle, it could have no application on the present facts: the 245 ought to have been in receipt of increment, since October 1, and the Council could not rely on its own failure to make the payment.  That argument has some weight, but it does not seem to us necessarily a knock-out blow.  A distinction can still be advanced between those in receipt of the payment prior to 30 September 2006 and those who should have received it thereafter only as a result of the coming into force of the Regulations (and months or years before they would have expected to receive it otherwise) – and particularly if it were known that the Scheme was about to be abolished in any event.  It will be for the Tribunal to decide – if the point becomes live – what weight to give to that distinction.

DISPOSAL

53.	We accordingly allow the appeal and remit the claim to a fresh Tribunal.