The Court of Justice of the EU (CJEU) has recently given another decision on the subject of age discrimination and justification.  Whilst many of the previous judgments have focused on issues around retirement age, unusually the Specht case dealt with the question of pay levels linked to age and, more importantly, the legitimacy of having in place protected terms. These protected existing pay levels where changes were made to the pay arrangements for civil servants.

The judgment is of general interest and relevance for organisations who are looking to make changes and have in place transitional arrangements or maintain protected terms, where there is a risk of a discrimination complaint of some sort.

Background

The focus of the case was on the EU age discrimination provisions contained in the Equal Treatment Framework Directive (2000/78) as transposed into German law. The age discrimination provisions were relevant when considering the application of federal law dealing with the remuneration of civil servants. 

There were two categories of civil servants on what were described as old terms, some employed by the federal body who benefited from protected terms and a second group of Land Berlin civil servants.  The pay structure was such that basic pay benefited from incremental pay rises at intervals of two years. The level of advancement depended upon a civil servant’s seniority as well as their performance with a deferred formula.  Seniority was calculated by reference to age, only counting service from the age of 21, with a formula that then discounted or deferred from aged 31- 35 by  25% and 50% after age 38. 

On 5 July 2009, a new law setting remuneration for federal civil servants was introduced linked solely to length of service and without the adjustment based on age. A similar modified remuneration post scale was introduced for Land Berlin servants with effect from 29 June 2011.  The transitional provisions (described as the arrangements in place for “established civil servants”), contained detailed rules which were aimed at transitioning existing civil servants from the old pay system to the new pay system.  The transitional arrangements moved established civil servants across onto the new paid scheme at a level most closely aligned to the remuneration in the post that they held on 31 July 2011.

A number of the civil servants subjected to these arrangements brought claims in the German courts: the Land Berlin civil servants in the claims were appointed between 1992 and 2003 and the federal civil servants between 1998 and 1992. 

Nature of Complaints

The primary complaint was that their pay was calculated by reference to age and thus they had suffered age discrimination; the civil servants were in effect seeking to be paid the difference in salary had the fraction or discount of their service (for the periods over 31 and over 35 respectively) not been applied, which would also have moved them to a higher pay point before transfer across to the new remuneration scheme.  Part of their argument was that in introducing the transitional arrangement as they had, the employer was perpetuating the age discrimination which existed under the old pay system. 

The Judgment

Discriminatory Pay Structure?

The CJEU concluded, not surprisingly, that the pay remuneration, notwithstanding its statutory basis, was still required to comply with the principles and obligations under the Equal Treatment Framework Directive. And although the Court confirmed that it was not for them to address the question of pay, they did have jurisdiction to consider in this context the working conditions: determining the discriminatory impact or otherwise of the grading arrangements was not the same as addressing the question of the amount of pay for each grade.

The Court was also clear that the structure of the pay arrangements, particularly under the old scheme, did amount to direct age discrimination and went on to consider whether it could be justified.  Whilst the German Government relied upon the link that age has to experience, the Court felt that the link between age and progress through the pay scale went beyond what was necessary for recognising experience (albeit the experience/reward link was legitimate).

The Transitional Arrangements

The next question was whether, given the discriminatory impact and unlawful nature of the old scheme, the transitional arrangements, which imported the pay levels from the old scheme into the new remuneration structure, were also discriminatory, or could be justified. 

The new structure did not lay down age bands or seniority but explicitly looked at progress by reference to experience and level of pay at a point in time.  The Court recognised that the transitional arrangements were in place to ensure that civil servants received an amount equivalent in pay to that which they had under the previous pay structure.  It recognised that this perpetuated the discriminatory situation.  However, the Court also recognised that the transitional system was in place with “the aim of protecting the acquired rights and legitimate and the legitimate expectations of civil servants as to the future progression of their remuneration” as the stated concern of the German Government.  In addition, as the German Government pointed out, the arrangement was something which the unions wished to have to preserve these acquired rights. 

Based on previous case law, the Court accepted that the protection of acquired rights can be a justifiable reason for discriminating.  As to the appropriateness of the approach taken, bearing in mind that one of the objectives was to ensure that civil servants did not incur any loss in salary and that they did not gain but were put on an equivalent or corresponding pay level, the transitional arrangements were justified. 

Finally, the Court was also satisfied that limiting this transitional arrangement to specific groups, rather than seeking to apply the old model to all civil servants, was appropriate and that the arrangement went no further than was necessary, bearing in mind the aims and objectives.

 Interestingly, one of the factors that was argued in the case was the indebtedness of the German Government and whilst the Court reiterated that increasing financial burdens cannot justify what would otherwise be discriminatory action, it was a relevant factor, bearing in mind also the administrative difficulties which a different approach (assessing the experience of each civil servant afresh) would create.  Indeed, the Court’s view was that “it was neither realistic nor desirable to apply the new classification system retroactively to all established civil servants or to apply a transitional system guaranteeing an established civil servant and in a favoured position the same level of pay received previously until he has gained the experience required to qualify for the higher pay under the new scheme”.

Implications

The significance of the decision is the willingness of the Court to recognise that even when taking action to remove discriminatory arrangements, there are circumstances in which transitional arrangements (despite the fact that they perpetuate or continue discrimination for a period) can still be justified and, in effect, override the obligation to ensure non‑discrimination.

This will come as a welcome reiteration of the fact this is the case for many employers who have to deal with sometimes difficult changes to contractual arrangements or, in seeking to address areas of inequality, look to make changes.  However, equally important in the judgment is the fact that the design of such transitional arrangements have to be considered carefully and applied as narrowly as is feasible to achieve the objective.  Indeed, this echoes what we have seen in the UK from the large number of equal pay claims in recent years, which have challenged pay protection arrangements (particularly in the public sector and amongst employers in the health and local authority sectors) where in introducing new pay and grading, pay protection has been introduced.  It is not just in the area of equal pay that this is relevant: we often see situations where similar concerns have been raised and efforts made to address the risk of age discrimination: for example in redundancy and enhanced severance terms or where, more generally, there is a strong link to or structure focused on length of service.