In Fasano v Reckitt Benckiser Group Plc and another [2024] case, the Employment Appeal Tribunal (“EAT”) upheld the dismissal of an indirect age discrimination claim by a retired employee after he was deprived of shares and options by his former employer's parent company in relation to a long-term incentive plan (“LTIP”). The EAT disagreed with the Employment Tribunal’s reasoning for the dismissal and provided their own altered judgment whilst upholding the dismissal of the claim.

LTIP

An LTIP is similar to an employee incentive scheme pursuant to which a company motivates and rewards its employees over the longer term. It is an arrangement where an employee (who is usually a senior executive or director) can be awarded a cash bonus, share options or shares in their employer company or their employer’s parent company. Such company is normally a listed entity in the UK and LTIP is a defined term in the FCA Handbook and the listing rules.

There is no prescribed format for an LTIP but the achievement of such reward would be subject to the fulfilment of performance conditions which will need to be met over a period of several years. These performance conditions are usually linked to the company’s growth metrics but may also be personal targets based on the performance of the employee. Only when the criteria have been met would the employee be granted the reward.

If there is a group of companies, then it is usually the parent company who puts the LTIP arrangement in place and adopts detailed scheme rules to govern how the arrangement works. It is the board of directors (or the remuneration committee of the board of directors) who determine how the scheme is to operate in accordance with its rules including selecting the participants and outlining the performance criteria.

Facts

Mr Fasano was employed as a Chief Supply Officer by Reckitt Benckiser Health Ltd (“RB Health”) which is a wholly owned subsidiary of Reckitt Benckiser Group PLC (“RB Group”). Mr Fasano was therefore eligible to participate in the LTIP approved by RB Group’s shareholders and remuneration committee.

The LTIP rules by RB Group provided that the award of shares and options to eligible employees would be determined on the satisfaction of conditions decided by RB Group’s remuneration committee. A condition of the award was that it would fail if the eligible employee was to leave employment before the award vested unless the employee was seen as a ‘good leaver’. A ‘good leaver’ in this particular case was an employee who left due to ill-health or redundancy or retirement.

Mr Fasano was awarded shares and options under the LTIP for 2017 the bestowment of which was further conditional on the performance of RB Group’s shares over the period from 1 January 2017 to 31 December 2019.

In June 2019, Mr Fasano retired as a ‘good leaver’ from RB Health and under the LTIP, remained entitled to a pro-rated amount of the 2017 award subject to the satisfaction of all conditions. However, towards the end of 2019 it became apparent that no 2017 awards under the LTIP would vest due to RB Group’s share performance. Therefore, in September 2019, the remuneration committee changed the terms of the award and the performance criteria so that 50% of the award would vest regardless of performance to promote employee retention.

To enable the award to vest for some employees, new conditions were imposed such as:

• Participants had to be employed by the RB Health in September 2019 (the day the change came into effect) to benefit from the changed criteria; and;
• Although the award would be treated as vesting at the end of 2019, it would only be released in May 2020 and the employee would also have to remain in employment till this date;

The second criteria meant that Mr Fasano and other ‘good leavers’ who left before May 2020 would not receive the award. The remuneration committee stated that the exclusion of former employees was appropriate given the reason for the change was to support employee retention in senior management positions.

If there had been no conditions imposed to remain in employment, Mr Fasano would have received shares and options worth £1.2 million under the original scheme rules. Mr Fasano therefore brought a claim in the Employment Tribunal against RB Health and RB Group alleging indirect age discrimination under the Equality Act 2010.

Indirect Age Discrimination

Section 19 of the Equality Act 2010 states that:

(1) A person (A) discriminates against another (B) if A applies to B a provision, criterion or practice (“PCP”) which is discriminatory in relation to a relevant protected characteristic of B's.

(2) For the purposes of subsection (1), a provision, criterion or practice is discriminatory in relation to a relevant protected characteristic of B's if—

(a) A applies, or would apply, it to persons with whom B does not share the characteristic,

(b) it puts, or would put, persons with whom B shares the characteristic at a particular disadvantage when compared with persons with whom B does not share it,

(c) it puts, or would put, B at that disadvantage, and

(d) A cannot show it to be a proportionate means of achieving a legitimate aim.

Section 4 of the Equality Act 2010 sets out a list of protected characteristics of which ‘age’ is one of them.

In this case, Mr Fasano claimed that RB Group placed a condition on him which was discriminatory in relation to his age. RB Group had applied the new conditions to younger employees who were not looking to retire and would have stayed in employment leaving Mr Fasano at a particular disadvantage due to his retirement age. RB Group contended that the reason for their decision was a proportionate means of achieving the legitimate aim of retaining their senior level employees.

Judgment

In the first instance, the Employment Tribunal decided that RB Group was acting as agent for RB Health in providing the LTIP for RB Health’s employees and by amending its terms, and therefore both RB Health and RB Group were potentially liable. The Employment Tribunal also found that requiring employees to be employed in September 2019 was a PCP for the purposes of section 19 of the Equality Act 2010 but it was a proportionate means of achieving the legitimate aim of retaining staff and was therefore justified. The claim failed on both the legitimate reason and agency points, and Mr Fasano appealed the decision.

The EAT dismissed the appeal but disagreed with the tribunals reasoning. The EAT was more interested in the PCP that stopped the vesting of awards to the ‘good leavers’ as that PCP was not a proportionate means of achieving the aim to retain employees as employees who had already left employment could not be retained and only the employees employed at the time could be retained. The EAT noted that RB Group could have addressed the legitimate aim of retaining employees by separate retention payments instead of imposing further criteria on the current or former employees.  

The EAT further disagreed with the Tribunal that the parent company (RB Group) was acting as agent for RB Health when providing the LTIP and amending its terms. Section 109 of the Equality Act 2010 states:

(2) Anything done by an agent for a principal, with the authority of the principal, must be treated as also done by the principal.

(3) It does not matter whether that thing is done with the …principal's knowledge or approval.

The EAT held that an essential feature of being an agency is that the principal authorises the agent to the relevant act and the agent does it on behalf of the principal. RB Health had no control over RB Group’s actions or decisions in relation to the LTIP and the EAT further found that the decisions of the parent company in relation to the LTIP no doubt had some effect on the legal relationship between Mr Fasano and RB Health which could not in itself make RB Group the agent of RB Health.  

Therefore, in relation to both points (a) the agency and (b) the PCP, the EAT justified the dismissal of Mr Fasano’s claims. The EAT did however query whether the claim could have been placed in another way or whether there was a gap in the law that Parliament ought to be looking at as the result of the judgment was ‘unpalatable’.  

Conclusion

Frustratingly whilst the rule changes to the LTIP were unfair, it was the liability that could not be determined through the agency point. A criticism of the judgment is that the ruling in this matter could pave way for discrimination by a parent company against its subsidiaries’ employees in relation to scheme terms as the parent company is not seen as the employer or the employer’s agent and those discriminatory acts may not be caught by the Equality Act 2010.

It is likely that the matter will be taken to the Court of Appeal.