"The Age Regulations will have a greater impact on business than the sex discrimination laws”. This was just one of many concerns voiced about the potential impact of the Age Regulations prior to their coming into force two years ago. To date employers have not been inundated with age claims but they are on the increase. According to the latest Acas Annual Report it received 1,547 age discrimination claims for conciliation in 2007/08, up from 394 in 2006/07 but still significantly lower than the 5,642 sex discrimination claims it had to deal with over the same period.

Most claims have got no further than the Employment Tribunal but there have been a number of EAT decisions over the last two years, not forgetting the Advocate General’s recent Opinion in the Heyday case, which contain some valuable learning points for employers. To mark the two-year anniversary of the Regulations coming into force we set out below the current state of play on some of the key issues thrown up by the new legislation.

  1. Compulsory retirement ages are still lawful – at least for the time being

One of the most controversial aspects of the Age Regulations is the fact they allow employers to retire employees compulsory at age 65. Heyday (an age lobbying organisation) claimed that this provision is unlawful under European law and challenged the UK Government by an application to the European Court. The Advocate General recently recommended that Heyday’s challenge should be rejected. He said there is nothing in the Equal Treatment Directive which prevents the UK from introducing a rule which allows employers to dismiss employees aged 65 or over if the reason for dismissal is retirement, provided (and this is the sting in the tail for the Government) that the rule can be justified in the context of employment policy and labour market objectives.

The Advocate General’s Opinion is not binding on the ECJ which will hear this matter later in the year. Judging by other recent cases before the ECJ it is unlikely to reach a different conclusion.

Once the ECJ has given its decision the matter will revert back to the UK Tribunal system for it to consider whether the compulsory retirement age of 65 can be justified at a national level (i.e. not per employer). In the meantime, what should employers with a compulsory retirement age be doing? There are three options. Do nothing, grant more requests to work beyond 65 or scrap the retirement age altogether.

Employers which continue to retire employees at 65 need to be aware that there is still a risk that an employee could claim that this constitutes unlawful age discrimination. Whilst the Age Regulations do not strictly give employees the right to do this, Tribunals have agreed to stay such claims pending the final outcome of the Heyday litigation. There are approximately 300 such claims currently parked in the Employment Tribunal system awaiting the ECJ’s decision.

The second option is to grant more requests to work beyond 65. The Regulations give employees the right to request working beyond 65 and employers are required to consider such requests. By dealing with each request on a case-by-case basis, rather than having a blanket policy of retiring all employees at 65, employers retain greater flexibility and are more able to respond to the demands of the business at the relevant time. One downside is that as and when the employee is finally retired there is more scope for argument than if a flat 65 cut-off is applied.

The final option is to scrap the compulsory retirement age altogether. An increasing number of employers are choosing to go down this route. Only this month the Cabinet Office announced that it would be dispensing with its compulsory retirement age for junior civil servants by 2010. More and more employers are looking to retain and/or recruit older workers to deal with skill shortages and cope with customer demand. Ultimately it is likely to be commercial rather than legal drivers that persuade employers to go down this route. 

  1. Enhanced redundancy schemes linking payments to age and/or length of service may be lawful

Two recent EAT decisions (MacCulloch v ICI plc and Loxley v BAE Systems) have thrown some light on the factors that Tribunals will take into account when assessing the lawfulness of enhanced redundancy schemes that do not come within the exemption contained in the Age Regulations. Such guidance is particularly useful at a time when many employers are carrying out restructuring and redundancy exercises and possibly looking to make enhanced severance payments to older workers.

As with the compulsory retirement age the EAT has made it clear that it all comes down to whether employers can “justify” (in the statutory sense) the provisions of the scheme in question. It seems prepared to accept that rewarding loyalty and encouraging turnover are both legitimate reasons for paying older workers more generous redundancy payments, but said that it is still up to employers to justify the degree of difference in any payments. For example, why (as in the ICI case) pay a 36-year-old 55% of her salary and a 50-year-old 175% of her salary, over three times more? What is clear is that the greater the differential in payments the harder it is likely to be for employers to justify it. What is not clear is what level of uplift value the Tribunals will be willing to attach to those fairly generic concepts (10%? 50? 400?) or how one puts a cash or percentage value upon intangibles like loyalty and turnover. Further litigation seems inevitable.

As a minimum employers should carry out a review of any scheme that is not covered by the exemption and document their reasoning for retaining it (i.e. why they think it is justified) just in case they are subsequently challenged. 

  1. LIFO may still be lawful – but only as one of a number of selection criteria

Unite, the UK’s largest trade union, successfully argued this month that length of service can be used for redundancy selection purposes under the Age Regulations.

Unite brought legal proceedings when Rolls Royce said it was no longer prepared to take long service into account when selecting employees for redundancy, as it felt that the factor indirectly discriminated against younger employees who generally had less service. Unite argued that any discriminatory effect was justifiable because the aim of the selection process was to produce a scheme that was fair and could be “peaceably” implemented. Fairness to the workers in the selection process was itself a legitimate aim as were both rewarding loyalty and protecting older workers who were likely to find it harder to get another job.

The High Court accepted Unite’s arguments. More interestingly it then went on to say that in any event Rolls Royce could rely on Regulation 32 of the Age Regulations, which provides that employers can continue to provide service-related benefits if it “reasonably” appears to them that their use of length of service “fulfils a business need of [their] undertaking (for example, by encouraging the loyalty or motivation, or rewarding the experience, of some or all of [their] workers”. The advantage of coming within Regulation 32 is that an employer has a much lower threshold to cross when it comes to justifying an otherwise discriminatory provision.

It is fair to say this is probably not what the Government had in mind when it drafted Regulation 32 – this exemption was principally designed to allow employers to continue to provide benefits such as holiday and sick leave based on length of service. Unite was however able to persuade the High Court that Regulation 32 could cover a redundancy selection policy whereby employees were awarded extra points for length of service. The Judge said: “In a redundancy selection matrix it seems to me clear that to give points for long service does confer on the employee concerned a benefit. Just as it might lead to an increase in holiday entitlement, which Rolls Royce would describe as the award of a benefit, so it might lead to the retention of employment which would otherwise be lost”. The Judge did however make it clear that using length of service as the sole criterion for selecting employees for redundancy was unlikely to be justifiable and it follows that the greater the influence of length of service on the end result the greater the burden on the employer to justify it. In this case it was just one of a number of factors that were taken into consideration. 

  1. Mind your language – avoiding discriminatory wording in recruitment and advertising literature

Recruitment has always been an area very susceptible to challenge under the Age Regulations. A significant number of the claims lodged at Employment Tribunals in the last two years concern allegations of discrimination during the recruitment process. Employers are still getting caught out by the inadvertent use of discriminatory wording in adverts, such as “youthful enthusiasm required” and “must be in the first five years of their career”. Whilst claimants cannot bring claims based on the advert alone they can refer to the wording as evidence of discrimination if subsequently rejected for the post.

Employers should also beware the perils of email. In Lambert v British American Tobacco (Investments) Ltd an employee circulated an email entitled “Perks of being over 50” which included such comments as: “Things you buy now won’t wear out” and “Kidnappers are not very interested in you”. Mr Lambert, 56, suffered a sense of humour failure about the whole thing and brought a complaint of harassment. Although the claim was dismissed for being out of time the Tribunal accepted that the email was in principle capable of constituting unlawful harassment by violating his dignity. One has to query whether, had the case been allowed onwards, he would have been able to show any upset to be reasonable in the circumstances.

So where next for Age discrimination? As highlighted above, everybody is currently waiting on the outcome of the Heyday litigation which may or may not result in amendments to the Age Regulations. The Government has in any event promised to review the compulsory retirement age in 2011. In addition, in the recent Equality Bill it has promised to outlaw age discrimination in the provision of goods, facilities and services. Such a provision is however unlikely to come into force until at least 2010.