The Facts

The claimant, Mr Fasano, was a former senior employee of Reckitt Benckiser Health (RBH), which is a wholly-owned subsidiary of the Reckitt Benckiser Group (the Group). As such he was eligible to participate in the Group's long term incentive plan (LTIP). Mr Fasano was awarded shares and options under the 2017 LTIP whose vesting was dependent on the Group's performance between 2017 and 2019.

In June 2019 Mr Fasano retired as a “good leaver”. Under the rules of the LTIP he remained entitled to a pro-rated amount of the award that would ordinarily vest at the end of 2019.

In 2019 it became clear that the Group's performance was such that no part of the 2017 awards under the LTIP would vest at the end of 2019. On 18 September 2019 the Group changed the terms of the 2017 award to provide that 50% of the award would be paid regardless of performance. The aim of this change was to retain existing senior employees of the group who would otherwise have received nothing in respect of the 2017 award and would therefore have less incentive to remain in employment.

The Group also introduced a new condition that in order to receive the award an employee had to be employed as at 18 September 2019, when the rule change took effect. This meant that the claimant did not benefit from the change and he received nothing in respect of his 2017 LTIP award. The claimant brought a claim in the employment tribunal alleging that this amounted to indirect age discrimination under the Equality Act 2010.

The ET decision

An indirect discrimination claim arises where a provision, criterion or practice (PCP) is applied to everyone but causes a particular disadvantage to persons with a relevant protected characteristic. Indirect discrimination can be justified if the PCP can be shown to be a proportionate means of achieving a legitimate aim.

The PCP in this case was the requirement that LTIP participants had to be employed on 18 September 2019 in order to benefit from the amended terms; that PCP put people over 57 at a particular disadvantage compared with those under 57; it put the Claimant at that disadvantage; but the ET decided it was a proportionate means of achieving the legitimate aim of retaining staff and was therefore justified. It also concluded that the Group was acting as agent for RBH when providing the LTIP for RBH’s employees and by amending its terms both companies would therefore be potentially liable had the claim succeeded. Mr Fasano appealed.

The EAT decision

The EAT dismissed the appeal but disagreed with the ET's reasoning. It concluded that while making changes to the LTIP was a means of achieving the legitimate aim of retaining staff, the relevant PCP (i.e. the requirement that LTIP participants had to be employed on 18 September) was not itself a means of achieving that aim. This was because those who were excluded had already left employment and so could not be retained. The PCP therefore was not justified.

However, the EAT also disagreed with the tribunal's decision in relation to the agency point. It concluded that the Group was not acting as RBH's agent, which was necessary in order for liability to be engaged. While the Group was providing a benefit to the employees of RBH, RBH had no control over the LTIP. In order for agency to apply it was essential to show that the Group had been acting on behalf of RBH in relation to the LTIP and there was no proper basis for those findings. As such, the appeal had to fail.

So, although the PCP had not been justified, neither respondent was liable to the claimant. This is because the Group was not the "employer", nor was it acting as the employer's "agent". Nor was the employer, RBH, liable as it was neither discriminating itself, nor authorising a discriminatory act by an agent.

What this means for employers

It is common for share schemes to be operated by a parent company on behalf of all subsidiaries which as the EAT itself acknowledged has led to an ‘unpalatable’ result – that despite there being discrimination there was no remedy for the claimant. The EAT suggested there might be a lacuna in the law of agency that Parliament ought to be looking at.

In relation to the PCP, it is possible that the decision may have been different if the respondents had framed the change to the LTIP differently – in terms of cost savings rather than retention of staff. The EAT commented that "the only real justification for the PCP was to avoid unnecessary payments to those who could not be retained, i.e. to save the expenditure of money. But it was never part of the Respondents’ case that the legitimate aim of the PCP was to save money or that they could not afford to pay the participants in the 2017 LTIP award who had left before 18 September 2019 what would otherwise become due to them".

It is not yet known whether the claimant will appeal to the Court of Appeal – we will, of course, report further if it is appealed.

Fasano v 1) Reckitt Benckiser Group Plc 2) Reckitt Benckiser Health Ltd