On 1 October 2006, the Employment Equality (Age) Regulations 2006 (the Age Regulations) prohibiting age discrimination in the workplace came into force. Those parts of the Age Regulations relating to occupational and personal pension schemes were implemented on 1 December 2006. As an update to our briefing of December 2006 - “Age discrimination and pension schemes” - and as the second anniversary of the pensions provisions of the Age Regulations approaches, we now consider the implications of a growing number of age discrimination decisions on the following key issues:

  • What aims can legitimately be justified?
  • What degree of justification is needed?
  • Is direct discrimination more difficult to justify than indirect discrimination?
  • Does age discrimination apply to pre - 1 December 2006 service?
  • Can employees be required to retire at age 65?

What aims can legitimately be justified?

For an employer to defend himself against an employee’s claim of direct or indirect discrimination, he must be able to show that there is an objective justification for the relevant policy, and that the policy is what the Age Regulations describe as a “proportionate means of achieving a legitimate aim”. Employment case law and Government advice suggest that legitimate aims include recruiting older staff, reducing staff turnover, providing promotion opportunities, encouraging staff loyalty, economic factors such as business needs and efficiency (although reducing costs should not be the sole factor), and the facilitation of employment planning.

The diversity of what may be considered legitimate aims is illustrated by the decision in MacCulloch v Imperial Chemical Industries plc (2008) (MacCulloch), where a higher redundancy payment for older employees was held to be a legitimate aim, while in Loxley v BAE Systems Land Systems (2008) (Loxley), a lower payment for older employees was held to be legitimate aim, for different reasons. Although these cases concern redundancy payment arrangements with discriminatory provisions, rather than pension schemes, they are employment appeal tribunal (EAT) decisions which will bind employment tribunals and they include examples of aims accepted as being legitimate.

In MacCulloch, the EAT accepted that objective justification could apply to the following three aims of ICI’s redundancy scheme, which could therefore be considered legitimate:

  • to encourage and reward loyalty;
  • to give older workers a larger payment as they would find it much harder to find alternative employment; and
  • to have a larger payment for older workers, thus encouraging people to leave who might not otherwise have done so, making space available for more junior employees.

The EAT rejected the employer’s additional claim that it was a legitimate aim for ICI to honour the existing scheme simply because it was long standing and part of their bargain with staff and trade unions. The EAT reasoned that many schemes will contain provisions for historic reasons, for example, to match provisions that applied under a previous employer’s scheme.

Loxley concerned an enhanced redundancy scheme under which payments were reduced once an employee reached 57, and employees aged 60 or above received nothing. The employer, BAE, claimed that it was a legitimate aim to prevent employees aged 60 or above receiving a windfall because the employees were also eligible for an immediate pension. However, after the redundancy scheme was finalised, the normal retirement age was raised to 65 with the result that the immediate pension was paid at a reduced rate because it would be received early. The EAT held that the aim was potentially justifiable but referred the case to the employment tribunal to consider again whether the discrimination was proportionate to the justification.

In Rolls Royce plc v Unite the Union [2008], the most recent case to consider age discrimination issues in relation to a redundancy scheme, the High Court rejected the employer’s claim that taking employees’ long service records into account when selecting workers for redundancy amounted to indirect age discrimination. The Court held that older workers would have more difficulty finding new employment after being made redundant and that seeking to protect them under the terms of their redundancy agreements was legitimate even under the Age Regulations.

What degree of justification is needed?

As noted above, objective justification is available as a defence for actions which may fall foul of age discrimination law where the action or policy is a proportionate means of achieving a legitimate aim. In MacCulloch, the EAT established which principles should apply when employment tribunals consider justification. Broadly, the employment tribunal must be satisfied that the measures adopted by the employer correspond to a real need, are appropriate with a view to achieving the objectives pursued and are reasonably necessary to meet that end. In particular:

  • the burden of proof is on the employer to establish justification;
  • the more serious the impact of the discriminatory effect of the measure, the more powerful must be the justification for it; and
  • it is for the tribunal to weigh the reasonable needs of the business against the discriminatory effect of the employer's measure and to assess whether the former outweigh the latter.

Is direct discrimination more difficult to justify than indirect discrimination?

The European Court of Justice (ECJ) is considering this issue in R v Secretary of State for BERR (ex parte Incorporated Trustees of the National Council on Ageing) (2007) (the Heyday case). However, in the meantime, pending what we hope will be a clarificatory ECJ decision, it appears from the reasoning given in MacCulloch that direct discrimination may be harder to justify in some cases. 

In MacCulloch, the EAT stated that it would accept that, at least in circumstances where the direct discrimination is reflected in general rules or policies, the discriminatory effect of the measure will necessarily be greater than where a rule is cast in apparently neutral terms but had indirectly discriminatory adverse effects.

Does age discrimination apply to pre-1 December 2006 service?

The short answer is that, when the UK Government adopted the Age Regulations, their effect was limited to service after 1 December 2006, which was the deadline for the implementation of the relevant EC Directive. However, two recent ECJ cases, Birgit Bartsch v Bosch, Advocate General's Opinion 2008 (Bartsch) regarding retrospective age discrimination, and Tadao Maruko v Vddb 2008 (Tadao) relating to civil partners, have raised general concerns as to retrospectivity. In our view, neither case affects the current position under UK law, which has not been examined by the ECJ.

Bartsch was a retrospective claim in relation to a German pension scheme and it raised a concern that the limit applying the Age Regulations to post-1 December service only, as adopted in the UK, is invalid. The Advocate General of the ECJ has recommended that the ECJ should reject the retrospective claim. The final ECJ decision is awaited and although the court is not bound to follow the Advocate General's opinion it often does so.

The Bartsch case relates to the age discrimination provisions as applied under German law. In our view, even if the claim were to succeed, it does not automatically follow that this would affect UK law. The ECJ's decision will consider the relevant German law rather than the UK provisions, together with any arguments which the UK Government might put forward to justify UK law.

Tadao raised some general concerns that there may be implications for time limits on age discrimination but it would probably be premature to regard it as affecting the UK’s age discrimination provisions. The ECJ’s decision in Tadao that a German "registered life partner" (like a UK civil partner) was entitled to a survivor's pension for all of the member's service has caused concern. UK law limits a civil partner’s benefits to the post-5 December 2005 service of the deceased member (and contracting-out benefits to post-6 April 1988 service). Although the ECJ in Tadao did not consider UK law nor any potential justification, it is possible that the UK government may decide to revise UK limits in the light of this decision. However, in our view, schemes other than schemes where the employer is an “emanation of the state”, i.e. a public body, do not need to take action in the meantime.

Can employees be required to retire at age 65?

UK age discrimination law allows employers to dismiss employees for retirement at age 65. The Government is due to review this default retirement age in 2011. In the Heyday case, Age Concern is questioning whether UK legislation correctly implements EU law in permitting an employer to dismiss an employee at age 65. The Advocate General has now opined that regulation 30 of the Age Regulations, which permits UK employers to dismiss employees aged 65 or over for retirement, can be justified in principle, and that European Member States may fix national retirement ages, provided that there is justification for the policy in the context of the relevant national law.

The news will be disappointing for workers approaching the age of 65 and facing enforced retirement but it will be largely welcomed by employers. Age Concern is now calling on the ECJ to dismiss the Advocate General’s opinion and to ensure older workers can enjoy equal rights.

As noted above, the ECJ's final decision is awaited. It is not bound to follow the preliminary opinion but it usually does so. If the ECJ agrees with the opinion, the case will be referred back to the UK, where the High Court will decide whether a compulsory retirement at 65 may be justified as a legitimate aim, based on such factors as employment policy and the labour market. A retirement age of 65 has already been justified objectively in a Spanish case in 2007.

Comment

The above court and employment tribunal decisions demonstrate how finely balanced and difficult it can be to conclude whether objective justification for direct or indirect discrimination may apply, whether the allegedly discriminatory action or policy is in pursuit of a legitimate aim, and whether the discriminatory steps taken are proportionate to that aim.

There are many difficult pension questions yet to be tackled. Although employment tribunals have issued a number of decisions, these can only give limited guidance, as the decisions made do not bind other employment tribunals. Schemes and employers need decisions by the EAT or higher courts to provide reliable guidance and it will take time for a body of case law to develop.

The Government consulted in December 2007 on whether schemes needed clarification on issues such as early retirement and the consultation raised (among other matters) the possibility of amending the Age Regulations. It has been confirmed that the response to the consultation is "imminent" and that amendments should be drafted by the end of 2008, although this now seems unlikely.

Age discrimination law may be approaching its second birthday but it is likely that we shall all be considerably older before the full impact of the legislation becomes clear.