Age Discrimination: "An Employer's Timebomb!" - Employment Law News Autumn 2005

01 October 2005

On 1 October 2006, the UK will implement legislation outlawing age-based discrimination in employment and vocational training. In July 2005, the DTI published the draft Employment Equality (Age) Regulations 2006. These draft regulations accompany the publication of the latest consultation document “Equality and Diversity: Coming of Age”.

Not only is age-based discrimination considered to be the last bastion of unlawful discrimination in the workplace, outlawing age discrimination is likely to bring net economic and social benefits. It is anticipated that wider participation rates for older (and younger workers) will reduce the burden on state benefits and increase tax revenue. With an ageing population, growing pensions crisis, low investment returns and a shrinking number of young people entering the labour market this also appears to make good practical sense.

Here is a summary of how some of the principal proposals might affect employers:

Recruitment, selection and promotion
Generally, employers will no longer be able to make decisions based on age. Employers will need to review their application forms and remove references to date of birth. They will also need to ensure that their adverts are age neutral. Employers will need to consider whether they can justify a minimum number of years experience for a job, as this is likely to disadvantage younger applicants.

It will, however, still be permissible for an employer to fix a maximum age for recruitment in limited circumstances, if it is a proportionate means of achieving a legitimate aim. Examples might be; where there are particular training requirements for the job, or the need for a reasonable period of employment before retirement so to allow for a return on training and development for the employer.

Service-related pay and benefits

Many employers require their employees to have completed a certain length of service before pay is increased or benefits given. Examples might include incremental pay scales or extra holiday entitlement. These can be discriminatory against younger workers, who have not completed the required length of service. This will be unlawful unless the employer can establish one or more of the exemptions below.

There will be two specific exemptions under the new regulations; firstly, any length of service requirement of five years or less (continuous and non-continuous) is not deemed unlawful discrimination and, secondly, any length of service requirements directly based on those in statutory schemes, for example, contractual redundancy schemes providing enhanced benefits. There is also a general exemption covering workers with more than five years service, when the employer can establish that there are business benefits for the practice on the grounds that it rewards loyalty, encourages motivation or recognises the experience of a worker. This is likely to be widely used by employers.

The different and lower age rates (for those aged 16-17 or 18-21) under the National Minimum Wage will, however, still remain. Occupational pension schemes will also continue to operate as they do now and, are unlikely to be affected.

Retirement age

Under the new legislation, there will be a set ‘default’ retirement age of 65. Employers will not be prevented from having a retirement age lower than 65, but will only be able to do so where it can be objectively justified and is judged appropriate and necessary. Examples might be where there is reference to health and safety issues in employing older staff, or the genuine need for succession planning. In practice, it is likely that most employers will set their retirement age at the same level as the default retirement age of 65.

The Government has confirmed that it will closely monitor the impact of the default retirement age. In 2011 (five years later), it will be subject to a formal review. If, in 2011, evidence suggests that the UK economy no longer needs a default retirement age of 65, it is likely to be abolished.

There will also be a new ‘duty to consider’ procedure for compulsory retirement of employees at any age. Employees will have a formal right to request to work beyond the default retirement age, or the employer’s justifiable retirement age (if lower). Under the procedure the employer must notify the employee in writing of the impending retirement no more than 12 months and no less than six months before retirement is due, and of the employee’s right to make a request to continue working longer. The employer has an ongoing duty to inform the employee of these, up to two weeks before dismissal. Failure to do so, will lead to the dismissal being automatically unfair.

An employee’s request to stay on beyond retirement must be made no more than 12 months and no less than six weeks before retirement is due. The employer will be required to hold a meeting to discuss the request. If the request is refused, the employer must then hold an appeal meeting. There is, however, no right for the employee to be given reasons for an employer’s refusal of a request, nor to test the business or other grounds for any refusal in a tribunal. If the procedure is not followed, an employee may, however, be able to claim unfair dismissal.

Unfair dismissal

Currently, employees are unable to claim unfair dismissal if they have reached the ‘normal retirement age’ for the position or, if none exists, the age of 65. Under the draft regulations, this statutory limit will no longer apply. Retirement at, or over the default retirement age of 65, will be a fair dismissal, provided that the retirement is a genuine retirement and the employer has followed the duty to consider procedures (see above). In cases of ‘planned retirement’, the assumption is that the reason for dismissal is retirement and it will be for the employee to show that the dismissal was for a different reason. In the case of ‘other retirement situations’, the burden will rest on the employer to show that the reason for the dismissal was retirement.

Importantly, the one-year qualifying length of service for unfair dismissal will be maintained.

Redundancy

Currently, employees are unable to claim a redundancy award if they have reached the ‘normal retirement age’ for the position or, if none exists, the age of 65. Under the draft regulations, this statutory limit will no longer apply.

Importantly, the two year qualifying length of service for redundancy will be maintained. Length of service and the 20-year cap will also remain for the calculation of redundancy payments. However, the multiplier based on age bands will no longer be a factor when calculating a statutory redundancy or basic award payment for unfair dismissal. The new level of multiplier has yet to be determined.

Employers should now be planning for the changes. In particular; employers should carry out an audit to appreciate the age composition of their staff, evaluate their pay and benefit structure, check their recruitment, application and retirement procedures as well as their employment rules and procedures, in an attempt to eradicate potential discrimination and discriminatory practices. There is little doubt that after the implementation of the new laws on 1 October 2006, HR practices and procedures will be governed within an even more complicated legislative framework.

For more information please contact Andrew Masters, Partner & Head of Employment.
 

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