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PREVIOUS SPEAKERS:

James Davies, Partner, Lewis Silkin

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Title: The Employment Equality (Age) Regulations: sweeping reform or stop-gap measure

Introduction

The draft Employment Equality (Age) Regulations 2006 (“the regulations”) published in July and accompanied by the DTI Consultation Paper, Coming of Age, represent one of the most significant developments in employment law in decades. The Government has published the regulations after a lengthy period of consultation and some two years after its initial consultation paper, Age Matters.

The regulations differ in significant respects from the legislation promised in the original consultation paper. Largely, for better or for worse, the changes amount to a regression in employment protection from that originally anticipated.

The solutions proposed by the Government to some of the issues faced in framing workable legislation will give employment tribunals and higher courts plenty to grapple with as age discrimination law evolves in future years. The regulations implement the UK’s obligations under Council directive 2000/78/EC of 27 November 2000 establishing a general framework for equal treatment in employment and occupation (“the directive”).

In this paper I propose focussing on two issues, namely justifying age discrimination and, in particular, direct age discrimination and retirement.
There are many other areas I could have chosen – service-related benefits, minimum wage and redundancy to name but three.


Justifying age discrimination

Under our existing sex and race discrimination laws we are used to being able to justify indirect discrimination but, other than through genuine occupational requirements (previously genuine occupational qualifications), we are unused to being able to justify direct discrimination.

Indirect discrimination under the directive is defined in familiar terms by article 2 (2) (b) – “indirect discrimination shall be taken to occur where an apparently neutral provision, criterion or practice would put persons having a particular ……age…..at a particular disadvantage unless: (i) that provision, criterion or practice is objectively justified by a legitimate aim and the means of achieving that aim are appropriate and necessary”. This definition applies not only to indirect age discrimination but to the other forms of indirect discrimination covered by the directive (religion, sexual orientation and disability).

Article 4 governs genuine occupational requirements.

However, unlike the other forms of discrimination covered by the directive, article 6 provides for the justification of direct age discrimination.

Article 6 (1) states:
“Notwithstanding Article 2 (2), Member States may provide that differences of treatment on grounds of age shall not constitute discrimination, if, within the context of national law, they are objectively and reasonably justified by a legitimate aim, including legitimate employment policy, labour market and vocational training objectives, and if the means of achieving that aim are appropriate and necessary.
Such differences of treatment may include, among others:
(a) the setting of special conditions on access to employment and vocational training, employment and occupation, including dismissal and remuneration conditions, for young people, older workers and persons with caring responsibilities in order to promote their vocational integration or ensure their protection:
(b) the fixing of minimum conditions of age, professional experience or seniority in service for access to employment or to certain advantages linked to employment;
(c) the fixing of a maximum age for recruitment which is based on the training requirements of the post in question or the need for a reasonable period of employment before retirement.”

There are a number of observations one can make about article 6 (1):
· Article 6 (1) appears to cover both direct and indirect discrimination. It refers to “differences of treatment on grounds of age” not being unlawful and article 2 (1) equates the “principle of equal treatment” to both direct and indirect discrimination. This is reinforced by the examples in the directive which include in 6 (1) (b) minimum conditions of professional experience or seniority which are clearly issues of indirect rather than direct discrimination.
· Article 6 (1) must be read in conjunction with the provision governing the justification of indirect discrimination found in article 2 (2). There are, therefore, two separate articles covering indirect age discrimination. It is unclear to what extent they differ. The justification test under article 2 (2) refers to objective justification whereas article 6 (1) refers to the objective and reasonable justification. It is unclear whether anything turns on this distinction and whether a more onerous test is envisaged under article 6(i) from that under article 2(2).
· The examples set out in the directive and listed above at (a) to (c) represent a non-exhaustive list of situations in which age discrimination might be justified. Member States are not prevented from adding others in domestic law.
· The specific provisions entitling the justification of age discrimination under article 6 are not mandatory but represent an option for each Member State and thus need expressly incorporating into domestic law.
· Interestingly, article 6 unusually prescribes that the test of justification should be assessed “within the context of national law”. Arguably, this gives considerable flexibility to the UK in determining what should amount to justified age discrimination under the regulations.

The UK has decided not to differentiate between indirect or direct discrimination in the regulations and the justification test set out in regulation 3 (1) is whether or not the treatment (direct discrimination) or provision, criterion or practice (indirect discrimination) “is a proportionate means of achieving a legitimate aim”. Bearing in mind the flexibility conferred on Member States by article 6, this probably does implement effectively this directive.

This reflects the UK Courts’ approach to interpreting objective justification in cases of indirect sex discrimination (Hampson v Dept for Education and Science [1989] IRLR 69; Barry v Midland Bank plc [1999] IRLR 582).

Before assessing proportionality by balancing the discriminatory impact of the treatment against the employer’s needs, it is necessary to identify whether or not the aim advanced by the employer constitutes an acceptable ‘legitimate aim’.

The Government has refrained from listing acceptable legitimate aims, accepting representations from employer bodies that this would be unduly restrictive and might lead to legitimate ‘legitimate aims’ being inadvertently omitted.

The result leaves significant uncertainty which cannot be helpful. The DTI’s previous consultation paper Age Matters published in July 2003 gave an indication of the Government’s thinking and listed the following as potential legitimate aims:

· health, welfare and safety (including protection of young or older people);
· facilitation of employment planning;
· particular training requirements;
· encouraging and rewarding loyalty;
· the need for a reasonable period of employment before retirement; and
· recruiting or retaining older people.

Further help can sought from regulation 3 (2) which sets out a non-exhaustive list of examples of direct age discrimination which might represent a proportionate means of achieving a legitimate aim.

These include:

· age requirements to protect or promote the vocational integration of people in a particular age group;
· fixing a minimum age to qualify for benefits to recruit or retain older workers; or
· fixing a maximum age for a post by reason of the need for a reasonable period in post before retirement

It is not entirely clear what is meant by “vocational integration”. However, for example, the UK would probably want to rely on this to justify discriminatory national minimum wage levels for younger workers. It would probably say they represented a means to encourage their employment and integrate them vocationally.

The second example from regulation 3 (2) is, on the face of it, surprising. On the one hand, it replicates wording from article 6 (1) (b) of the ditrective. On the other hand, it suggests that recruiting or retaining older workers in itself represents a legitimate aim. In other words, that positive discrimination and not only positive action in favour of older workers can be lawful. Section 4.2 of the consultation paper, Coming of Age, covers positive action and does not support the interpretation that the Government intends positive discrimination in favour of older workers to be lawful. Indeed regulation 28 of the regulations limits positive actions to:

  • affording persons of a particular age or age group access to facilities or training; or
  • encouraging persons of a particular age or age group to take advantage of opportunities for doing particular work in either case to compensate for disadvantages suffered by persons of that age or age group.

It would be surprising if the Government’s intention was to permit positive discrimination in these circumstances, but this appears to be the effect of this example. Article 7 headed Positive Action permits Member States to maintain or adopt specific measures to prevent or compensate for disadvantages. Indeed, this wording is similar to that found in the Equal Treatment Directive and which has been interpreted by the European Courts more widely than the limited concept of positive action under UK law (e.g. Lommers [2002] IRLR 430). Nonetheless, the European Courts will only go so far in permitting positive discrimination and will not endorse measures which “automatically and unconditionally gave priority to the candidates of certain” disadvantaged groups (Briheche v Ministre de l’Interieur ECJ, 30 September 2004). It is difficult to reconcile this with the wording in article 6 (1) of the directive.

The third example relating to fixing of ages for recruitment to take account of a reasonable period in post prior to retirement is less contentious. The issues for the courts and tribunals in such a case are much more likely to surround the length of a “reasonable period in post” than the legitimacy of this aim.

Perhaps the most important question is the extent to which the employer’s economic considerations can represent a legitimate aim. The examples in the regulations, the directive and the first consultation paper, Age Matters, give little support to cost or profitability being a legitimate aim.

Two hypothetical examples illustrate where an employer might want to advance economic considerations as a legitimate aim:
1. where the cost to the employer of providing a benefit to an older (or younger) employee is significantly increased eg the cost of providing medical insurance to an over 65 year old employee is often much higher than for employees below that age;
2. where customer prejudice might or would result in an impact on sales eg a young insurance salesperson targeting older customers might well be less successful than an older salesperson whom the customers might perceive as more trustworthy.

Paragraph 4.1.16 of the Coming of Age consultation paper states that “Economic factors such as business needs and considerations of efficiency may also be legitimate aims. However, discrimination will not be justified merely because it may be more expensive not to discriminate”.

What is meant by this? Is there a distinction between cost and efficiency/business needs? If it is intended that there should be, I would submit that it is an artificial one. The impact of increased cost is obviously to reduce profits. The impact of reduced sales or reduced efficiency is precisely the same. Either the financial impact of discriminating is a legitimate reason for treating people differently on the grounds of age or it is not.

However, the consultation paper suggests a possible distinction between the two. The case study at paragraph 4.1.18 states:
“A retailer of trendy fashion items wants to employ young shop assistants because it believes that this will contribute to its aim of targeting young buyers. Trying to attract a young target group will not be a legitimate aim, because this has an age discriminatory aspect.”

Would this be the same if the retailer could show declining profits if it did not target the sector? What if the retailer was on the verge of going out of business?

It would, of course, be unlawful to prefer male sales assistants in a sports shop or white door to door salespersons because of a belief of sexist or racist prejudice amongst customers.

Elsewhere the consultation paper implies that cost might justify discrimination. Section 4.4 of the consultation paper covers employment-related insurance. Despite representations from various bodies the Government has, at least so far, declined to make special provision for such insurance. In paragraph 4.4.6 of the paper, however, they refer to employers being able to use the general test of objective justification.

It may well be that it is for tribunals and courts ultimately to tackle these issues. However, if so, employers are in for a lengthy and unsatisfactory period of uncertainty.

It might be interesting to consider the approach taken by UK courts and tribunals to the use of financial factors in justifying indirect sex discrimination. The test for justifying both direct and indirect age discrimination under the regulations reflects the test for justifying indirect sex discrimination under the Sex Discrimination Act 1975. The most recent and, perhaps, most considered authority is Burton J’s in the EAT decision of Cross v British Airways plc [2005] IRLR 423. Ironically this case revolved around the indirectly sex discriminatory nature of different retirement ages for employees recruited before and after 1971.

On the facts, the EAT upheld the employment tribunal’s decision that the discrepancy was justified. The legitimate aims advanced by BA and accepted by the EAT were cost (which the tribunal had described as the “reason we find has been at the forefront of all considerations by the respondent”) and the impact on pension schemes.

The EAT held that cost alone cannot constitute a legitimate aim but that it is appropriate to take cost into account in the balancing exercise in deciding whether or not the employer’s discriminatory treatment is a proportionate means of achieving the employer’s aim (so-called “costs plus”). The EAT seems to have considered “cost” not only in the narrow sense of expending money but also as covering economic factors in a broader sense.

It would be helpful to have clearer guidance on the Government’s intended approach to the use of economic factors as part of an employer’s reasoning for discriminating on the grounds of age.


Retirement

At present, mandatory retirement is lawful in the UK: (1) employment tribunals will not entertain unfair dismissal complaints if the employee has passed his or her normal retirement age; and (2) age discrimination is not currently unlawful. Consequently, provided the employee has passed his/her normal retirement age and provided the reason for dismissal is not a prohibited one (eg whistleblowing, sex or race discrimination) the employee cannot challenge the employer. This would inevitably be challenged by the introduction of age laws as mandatory retirement represents perhaps the most obvious example of direct age discrimination – but for being of a particular age, the employee would not have been dismissed. Further, the upper age limits on unfair dismissal protection are discriminatory and would inevitably come under scrutiny.

The Government needed, therefore, to work out how the new legislation would impact upon employers’ retirement practices.

To the great concern of many employers Age Matters anticipated employers needing to justify mandatory retirement at least below 70. (This was widely misinterpreted in the media as forcing employees to work until their 70th birthday.)

There then followed much debate. On one side were employers’ concerns about managing without mandatory retirement. On the other side, many other interested bodies were campaigning to abolish unjustified mandatory retirement ages and extend working lives - not least to help defuse the impending pensions timebomb.

In December 2004, after the unsuccessful attempts of a working group of interested bodies to reach a consensus, the Government announced that the regulations would include a default pension age of 65, that this default age would be reviewed in 2011 and the employers would be subject to a duty to consider requests to stay on beyond retirement. The regulations published in draft have expanded upon the principle of a default retirement age and set out the detailed measures which will apply.

Unlawful age discrimination

Retirement at or above 65
Regulation 29 of the regulations exempts retirement from amounting to unlawful age discrimination provided the employee is both:

  • dismissed by reason of retirement; and
  • is at age 65 or above.

In determining if the employee has been dismissed by reason of retirement we need to understand what is meant by ‘retirement’. The Oxford Dictionary is unhelpful and includes in its definitions of retire - “Cease or give up office or profession or employment….Compel (employee etc.) to retire”. Retirement can therefore be at the behest of employee or employer and embraces resignation and dismissal. However, the regulations only make sense if retirement has a more specific meaning.

Regulation 29 provides that deciding whether or not a dismissal at or above age 65 is by reason of retirement is determined in accordance with the new sections 98ZA to 98ZC of the Employment Rights Act 1996.

Section 98ZA states that retirement shall be deemed to be the reason for dismissal on a planned retirement date unless it is an excluded dismissal by virtue of section 98ZA (9).

For the purpose of establishing whether or not Section 98ZA applies to retirement at or above 65, a planned retirement date is:

  • retirement on the 65th birthday;
  • retirement at a normal retirement age over 65; or
  • retirement at any age over 65 provided at least 6 months’ notice is given.

Section 98ZA (9) effectively says that if the employee can show that there was some reason other than retirement for the dismissal on the planned retirement date then it will not be a dismissal by reason of retirement. In other words, retirement is the reason if the employee can not show a different reason. This brings us full circle and brings us no nearer a satisfactory definition.

If retirement does not equate to resignation (when the employee chooses to leave) and dismissal (when the employer wants the employee to leave), we need to develop a narrower meaning. In layman’s terms “employee retirement” merely refers to the employee’s subsequent plans (eg to cease working or to draw a pension) to differentiate it from other forms of resignation. On the other hand, “ employer retirement” occurs where the employment automatically terminates on a particular date.

If this is right it has important implications for employer policy because as soon as the employer makes value judgements about which employees will continue beyond retirement age and which will not, it becomes hard to rebut an employee’s complaint that his or her dismissal was for a different reason (eg redundancy, performance).

This could well have the unfortunate effect of deterring employers from retaining employees who have reached the retirement age and whom the employer would otherwise be happy to retain.

The position where the employer dismisses by reason of retirement on a date other the planned retirement date is set out in Section 98ZB. In this case, there is no presumption that the dismissal is by reason of retirement. It will be for the employer to prove this. For example, an employer might seek to establish retirement was the reason for dismissal in respect of an employee who is dismissed at a contractual retirement age over 65 but which does not represent his or her normal retirement age. In these circumstances the obstacles to an employer who permits some to work on in demonstrating retirement as the reason for dismissal will only be greater.

Section 98ZC applies if retirement is one of two or more potentially fair reasons for a dismissal other than on a planned retirement date. In this case retirement shall be disregarded as a reason, even if it is the principal reason, if the employer contemplated dismissing the employee in the six months prior to dismissal for another reason. It is unclear why this complex provision is considered necessary.

Retirement below 65
Regulation 29 does not apply to retirement below 65. Retirement at, say, 60 would, therefore, amount to direct age discrimination and would be unlawful unless the employer could justify that dismissal under regulation 3 (1) by showing it was a proportionate means of achieving a legitimate aim. It is highly unlikely in all but exceptional cases that an employer would be able to show this.

Before contending that the dismissal is justified, the employer would have to show that the dismissal was by reason of retirement.

The employer may still be able to show retirement to be the reason for dismissal if it comes within the definition of a planned retirement date. The employer would seek to rely on section 98ZA of the Employment Rights to pass the burden on the employee to show a different reason even though there is no express cross-referencing to the definition of retirement in section 98ZA of the Employment Rights Act.

In the case of retirement below 65, a planned retirement date would be retirement at:

  • the employee’s normal retirement date; or
  • on at least 6 months’ notice.

In passing, it is worth noting that the default retirement age provisions only cover employees and persons in crown employment and not, for example, partners or other self-employed persons. A law firm wishing to set a retirement age for partners at 65 would have to justify it. It may well be that this is an oversight which will be remedied in the final legislation.


Unfair dismissal

The regulations provide for the removal of the upper age limit on unfair dismissal claims (paragraph 4 of schedule 6 of the regulations) so, on the face of it, enabling employees dismissed at or above their normal retirement age to pursue unfair dismissal claims.

Fair reason
Schedule 6 to the regulations amends the Employment Rights Act 1996 so that an additional potentially fair reason for dismissal is added to section 98, namely retirement.

As mentioned above, determining whether or not a dismissal is by reason of retirement depends on whether or not it constitutes a planned retirement (see above). It should be noted that the presumption that retirement is the reason for dismissal on a planned retirement date does not apply if the dismissal amounts to unlawful discrimination under the regulations (eg where the retirement is below the age of 65 and cannot be justified) (section 98ZA (8) of the Employment Rights Act).

If the employer wishes to rely on retirement at a date other than a planned retirement date as a fair reason for dismissal, it must prove that it did not contemplate dismissing the employee at some point in the preceding six months for a reason other than retirement. Of course, proving a negative is not necessarily straightforward and would seem to prevent the employer relying on retirement as the reason if it instigated disciplinary proceedings which would have led to dismissal but acquitted the employee. It is not clear why this complex provision is considered necessary.

Under general unfair dismissal principles (section 98 (1) (a) Employment Rights Act) where there is more than one reason for dismissal, the principal reason must be shown to be fair. However, as mentioned above, if retirement is one of two or more potentially fair reasons for a dismissal other than on a planned retirement date retirement shall be disregarded as a reason, even if it is the principal reason, if the employer contemplated dismissing the employee in the six months prior to dismissal for another reason. It is, again, unclear why this complex provision is considered necessary

Fairness
Section 98ZD covers the fairness of retirement dismissals. Retirement dismissals will only be unfair if either:
· the employer’s duty to consider requests to stay on has been breached; or
· the employer has not notified the employee of his or her right to make a request to stay on no less than 14 days before retirement.

Consequently, any failure to follow the statutory dismissal and disciplinary procedures will not render the dismissal automatically unfair. Strangely the compensation adjustments for failure to follow the statutory procedures have not been disapplied. This cannot have been the intention as the duty to consider procedure is designed to replace these pre-existing statutory procedures.

The duty to consider procedure is set out in schedule 7 to the regulations. It basically requires:

  • employer to advise employee of the right to request to stay on at least 6 months and no more than 12 months before retirement (breach = award of up to 8 weeks’ capped pay);
  • employee to make request six weeks before retirement ;
  • employer to meet employee to consider request;
  • employer to notify employee in writing of outcome;
  • employee to have right of appeal.

Whereas there is no obligation on the employer even to give a reason for refusing a request, most employers (unless they reject all applications) will probably not only want to give a reason but to consider that reason carefully in order to pre-empt challenges that the real reason is not retirement (see above).

If the employer grants the request, the employee has similar rights on the expiry of the extension of employment.

The Government has sought a balance between the conflicting interests of employers and employees. However, in my view it represents a disappointing fudge. Employers may feel compelled to reject requests to stay on for fear of claims from those it wants to reject. The Government’s failure to exempt insured-benefits is also likely to deter some employers from retaining the over 65s.

As Adair Turner’s pensions report highlighted last year with an ageing population we need to encourage employers to work longer. The regulations, whilst improving greatly the lot of the under 65s, might be looked back on as an opportunity missed in respect of the over 65s.

James Davies
Partner, Joint Head of Employment and Incentives Department, Lewis Silkin
james.davies@lewissilkin.com

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