Age discrimination to be unlawful subject to 'specific aims' objective justification

We were growing old waiting for them but the Government has finally published the draft age discrimination regulations and its long delayed Age Consultation 2005. The regulations need to be in force by October 2006 to avoid the UK being in breach of the European Employment Framework Directive. The proposed regulations introduce a new head of discrimination that will be far reaching. They will apply to both young and old alike and so potentially to everyone at any stage of their working life.

The basic proposal

The basic proposal is stated to be "to outlaw direct and indirect discrimination on the basis of age in employment and vocational training. But, that will not mean that employers have to recruit, promote, retain, or train people who are not competent, capable, and available to perform the essential functions of the post concerned or to undergo relevant training".

The draft legislation is framed in the same terms as the existing discrimination statutes, except that direct discrimination on grounds of age can be justified (as well as indirect discrimination) on a number of apparently very wide ranging grounds. This is guaranteed to produce uncertainty and litigation, at least in the short term.

However, by a series of elaborate carve-outs, occupational pension schemes for most practical purposes fall outside the scope of the Regulations. It seems it was all too difficult.

Who will be protected?

The main categories of people protected by the Regulations are:

• employees (whether the individual is directly employed, or working under another type of contract, such as agency workers and some self-employed arrangements);
• people undertaking vocational training; and
• job applicants.

The Regulations will also cover membership of trade unions or trade or professional bodies and office holders appointed by the Crown and some other paid office holders (these can include company directors and the members of some independent public bodies).

Anyone who falls within the above categories is potentially part of the protected class because, unlike in the US, the Regulations do not impose any minimum or maximum age limits for protection. So, the young, middle-aged and old alike can potentially claim either upwards against someone older or downwards against someone younger than them.

Some exceptions will be allowed in relation to very young workers to comply with legislation for the protection of younger workers, for example, Working Time legislation. Provision will also be made for retirement ages.

The Regulations will apply to every employer, regardless of the number of people it employs.

Will the Regulations apply to access to goods, facilities and services?

No, they won't, so the scope of the legislation will be narrower than existing UK race, sex and disability discrimination legislation. The Government acknowledges that the eradication of age discrimination will involve a shift in cultural attitudes. However the failure to extend its scope to goods and services puts the main burden of change onto employers, rather than requiring society as a whole to take active measures to deal with the causes of the problem.

What is covered?

The Regulations will cover:

• Selection arrangements and recruitment;
• Terms & conditions and reward policies; and
• Dismissals and retirement.

Some specifics:

Recruitment, selection and promotion

Employers will be able to objectively justify an upper age limit for recruitment by reference to the specific aims of "the need for a reasonable period of employment before retirement" or "the particular training requirements of the post in question". So a company may be able to justify not recruiting someone near to retirement age if completing the training would take them up to the company's retirement age.

Pay & non-pay benefits

Employers will still be able to use length of service as a factor in awarding or increasing benefits. This will apply generally where the factor is used to reflect a higher level of experience, or reward loyalty, or increase/maintain motivation. Employers will still need to show the aim cannot be achieved by some other means. In addition, any length of service requirement of five years or less will automatically be exempt from the Regulations. Thus, there is a complete 'five-year' exemption for length of service criteria.

What is prohibited?

The approach is to be "as coherent and consistent as possible across all the strands of equality legislation". The proposed regulations will prohibit:

• both direct and indirect discrimination. However, there will be exceptions to the general rule of non-discrimination based on age (see below).
• harassment.
• victimisation.
• discrimination after employment or training (where there is a close connection to the former employment/training).

The definitions of harassment and victimisation both mirror the definitions contained in the regulations prohibiting discrimination on the grounds of sexual orientation and religion or belief. Similarly prohibiting discrimination in certain circumstances after employment has ended is not a new concept specific to age discrimination. But the definitions of direct and indirect discrimination and the circumstances in which they might be justified are worth looking at more closely.

Direct discrimination is defined as "a person ('A') discriminates against another person ('B') if on grounds of B's age or apparent age, A treats B less favourably then he treats or would treat other persons".

The reference to apparent age allows a person to claim that they have been discriminated against on the grounds of another's perception of their age, as well as their actual age. This echoes similar provisions in the legislation prohibiting discrimination on the grounds of sexual orientation and religion or belief.

The Regulations also contain an express prohibition on being treated less favourably for failing to comply with a discriminatory instruction or complaining about being given such an instruction.

Indirect discrimination is defined as applying "a provision, criterion or practice" that has an adverse impact on a particular age group and which operates to the detriment of the individual claiming.

Justification - Distinctive to the proposed age discrimination legislation is that direct discrimination may potentially be justified outside the narrow defence of a genuine occupational requirement.

The Regulations provide that discriminatory practices (whether direct or indirect) may be justifiable where the treatment or, as the case may be, criterion, provision or practice is a proportionate means of achieving a legitimate aim. 'Proportionate' means 'appropriate and necessary'.

Although the consultation document states that the legitimate aims that can be relied upon for direct discrimination will be restricted to aims set out in the Regulations, the Regulations only list three examples where directly discriminatory treatment might be a proportionate means of achieving a legitimate aim:

• Setting age requirements to protect or promote the vocational integration of a particular age group.
• Fixing a minimum age to qualify for employment-related advantages to retain or recruit older people.
• Fixing a maximum age for recruitment because of the training requirements of the post or the need for a reasonable period in post before retirement.

However, as currently drafted, this list is not exhaustive so potentially employers will be able to persuade tribunals that discriminatory treatment is justified on other grounds. In any case, employers will have to show cogent evidence of the business reason and that they have considered alternatives which would have a less discriminatory effect.

The Guidance to the Regulations says that it will not be possible to justify discrimination just because it would be more expensive not to discriminate. The Guidance also says that the legitimate aim relied on cannot itself be related to age. So restaurants and bars targeting a young clientele will not be able to use that target market as justification for employing only young people.

Age rules in UK legislation

UK legislation contains a large number of age related limits and rules. The Government believes many can be objectively justified and in particular does not intend to make any changes in relation to the National Minimum Wage and Working Time Regulations or state benefit schemes. Further, an exemption will be given for employers to specify an age requirement where it is needed to comply with other legislation, such as the road haulage licence age requirements.

However there are areas of current legislation where changes are needed, in particular, retirement ages and their effect on unfair dismissal and redundancy rights.

Statutory redundancy payments

• The current legislation provides payment for those aged between 18 and 65. These age requirements will be removed.
• Length of service is currently used to calculate the statutory redundancy payments and a maximum of 20 years' service can be taken into account. The regulations will not change this.
• At the moment, the amount of the statutory redundancy payment gradually reduces to zero for those employees who are within one year of reaching age 65. This provision will be removed.
• Currently, a multiplier based on age is used to calculate redundancy payments. This ranges from half a week for younger employees to one and a half weeks for older employees. The regulations will make the multiplier the same regardless of age. The multiplier that will be used is yet to be decided.

Unfair dismissal

• The regulations remove the upper age limit on the right to claim unfair dismissal.
• The calculation of the basic award for unfair dismissal currently relies on a number of age-related factors and is framed in the same way as statutory redundancy payments. The age discriminatory elements will be removed following the same approach given for statutory redundancy payments.
• The regulations add 'retirement of the employee' to the list of potentially fair reasons for dismissal. Dismissal on this ground will be fair if the dismissal is genuinely on grounds of retirement, takes place at or after age 65 or a lower objectively justified retirement age and the new 'duty-toconsider' procedure (see below) has been followed.

Retirement

It is important to distinguish between a retirement age and a pension age. The two are separate. The retirement age is the age at which the employee stops working. The pension age is the age at which the employee's pension plan starts to pay out. At present we have no national default retirement age in the UK. (The state pension age of 65 is exactly what it says – the age the State starts to pay pensions – not a national retirement age).

The regulations will create a default retirement age of 65 for employees only (not office holders). This is not an obligatory retirement age, but it will allow employers to set a retirement age at or above age 65 if they want to without having to justify it.

But employees will have a similar right to the right to request flexible working whereby they can ask to work beyond the set retirement age. If employers want to avoid a finding of automatic unfair dismissal, they must comply with this new 'duty-to-consider' procedure:

• The employer must inform the employee of his intended retirement date and of his right to request working longer at least six months (but not more than 12 months) before the intended date of retirement. An employer who fails to do this may have to pay the employee compensation of up to eight weeks' pay.
• If the employer fails to comply with the duty to inform as above, it has an on-going duty (until two weeks before the dismissal) to inform the employee of his intended retirement date and his right to request working longer. If the employer doesn't do this, the dismissal is automatically unfair.
• If the employee makes a request to work longer, the employer will have to consider it and hold a meeting with the employee to discuss it. The employer has to inform the employee of its decision within two weeks and the employee can appeal against the decision.

The duty to consider requests to work beyond age 65 will need to be handled carefully. An employer willing to agree to such a request would be well advised to do so for a fixed period to allow the decision to be reviewed, should it wish to dismiss the employee on grounds of retirement in the future.

Where employers want to retire employees who are younger than 65 or set a default retirement age of less than 65, they must be able to objectively justify it in the same way as set out above.

The Government will review whether it is still appropriate to have a national default retirement age of 65 in 2011.

Occupational pensions - a carve-out by elimination?

The Regulations make it unlawful for trustees and managers of an occupational pension scheme to discriminate against members and prospective members on grounds of age in carrying out any of their functions in relation to the scheme.

In practical terms the Government has said: "We expect pension schemes to be able to operate largely as they do now."

Essentially, these draft Regulations follow exactly the same structure as those for sexual orientation and religion. This means they import an anti-discrimination rule into all occupational pension schemes and that harassment is also outlawed. Trustees and managers are given an amendment power by resolution to ensure compliance, and remedies are through the Employment Tribunal.

However, pensions accrual and benefits are, almost by definition, age-related. A whole series of detailed exemptions should in effect mean that the Government's expectation should be met.

In summary, these exemptions are:

Ages for admission, entitlement and actuarial calculations

• admission ages (minimum and maximum), including setting different ages for different employees/groups/categories
• pension age, including different ages for different employees/groups/categories
• age criteria in actuarial calculations, including early retirement reductions, late retirement uplifts, transfer payments, AVC calculations, contributions and benefits paid, commutation
• minimum service period for admission, including different periods for different employees/groups/categories
• minimum remuneration for admission, including different remuneration for different employees/groups/categories
• early or late retirement ages, including different ages for different employees/groups/categories

Contributions

• contribution differences due to age
• equal contributions irrespective of age
• contribution differences due to length of pensionable service
• contribution differences due to seniority
• contribution differences due to level of remuneration

Benefits

• benefits payable due to differences in pensionable service
• benefits payable due to differences in contributions paid
• benefits due to seniority
• benefits payable due to different level of remuneration
• benefits limited due to different level of remuneration
• benefits limited by minimum/maximum length of qualifying service
• benefits limited by minimum/maximum level of remuneration

Normal pension age

• use of normal pension age for transfer value calculations to and from schemes
• enhancements in certain circumstances based on prospective service

Different schemes for different members

• closure of a scheme to new members
• provision of different schemes for different age groups
• provision of different schemes for different lengths of service

Dependants' benefits

• application of age limits to dependants' benefits
• application of various reductions, including spouses and civil partners

Other rules/practices

• minimum age for annual increases to pensions in payment
• age differences in relation to pensions in payment

Seeing this list, one might ask what is not covered in the exceptions, but might be objectively justifiable anyway. Unfortunately, it will be a case of identifying the offending rules/practices and checking them against the list of exceptions. The draft provisions seem to specifically except all of the most common aspects of age discrimination relating to occupational pension schemes. Where there is a rule or practice that is not specifically covered in the exceptions, it will be a question of whether it can be objectively justified.

However, the Government clearly intends that not much if anything should slip through. Why, then, they did not follow the Irish government's approach to the EU Directive and simply exempt occupational pensions schemes is a matter for them.

Enforcement and remedies

The procedure for bringing claims is the same as for other forms of discrimination, namely:

• Complaints must be brought in the Employment Tribunal, unless the complaint is against an institute of further or higher education or the alleged act of discrimination or harassment arises out of a relationship between the complainant and the respondent which has ended, in which case proceedings must be brought in the County Court.
• Proceedings must be brought within three months of the date of the alleged discrimination (six months in the case of the County Court). The tribunal can extend time if it considers it just and equitable to do so.
• If a complaint is successful, as with other forms of discrimination the tribunal may make:

- a declaration of the parties' rights;

- an award of damages, which can include an award for injury to feelings. There is no upper limit on compensation;

- a recommendation that the Respondent takes action to reduce the effect of the discrimination.

There is a procedure for claimants to serve an age discrimination questionnaire on potential respondents with the usual scope for adverse inferences being drawn from failing to reply within eight weeks, or giving evasive or equivocal answers.

Timescale

The Consultation will run until 17 October 2005 with the Regulations coming into force on 1 October 2006. Anyone wanting to take part in the Consultation should respond to us (contact details given below) or the Age Legislation Team at the DTI (www.dti.gov.uk).

What should employers be doing?

There is over a year until the Regulations come into force but employers need to address the issue now. Claimants may use evidence of current discriminatory practices to establish a pattern of age discriminatory practices once the Regulations are in force.

Although the objective justification test applies to both direct and indirect discrimination, it may be easier to establish an objective justification for indirectly discriminatory policies. Employers need to look now at any age discriminatory policies and consider the business reason for needing the policy and whether it could be defended successfully as both legitimate and proportionate. And obviously this is not just a one-off review process - employers will need to build into their decision-making processes for the future a method for checking for age discrimination.