A recent EAT judgment in Smith v Gartner Ltd UKEAT/0279/15 has upheld an earlier employment tribunal decision that there was no direct age discrimination by an employer who ended payments in relation to a permanent health insurance (PHI) scheme when the employee turned 60. It considered the ways employers can defend what might be considered as less favourable treatment for age discrimination claims and referred to other aspects of the Equality Act 2010 (EqA) which determines how employers justifiably discriminate on the basis of age or length of service.

In addition to discussing this case we also provide a summary and reminder of some of the key aspects of age discrimination which employers should consider when offering employee age related benefits.

Providing PHI benefits up to a certain age

The EqA provides that it is not unlawful for employers to cease to offer the provision of insurance or related financial service when employees reach the greater of either 65 or the state pensionable age. This applies when the insurance or financial service is provided in pursuance of an arrangement between the employer of another person, or where the employer’s business includes the provision of insurance of the financial service.

However the recent EAT decision considers whether it might be lawful, in some limited circumstances, to cease to provide benefits to employees when they reach an age younger than 65. However these circumstances are very specific.

In Smith v Gartner the Claimant brought a claim for unlawful deduction of wages and direct age discrimination because her employer ended payments under a PHI scheme when she reached 60. The Claimant worked under a contract of employment whereby disability insurance was offered “subject to the rules in force at that time”. The Claimant had gone off sick in 2002 and did not return to work. She began to receive payments under the PHI scheme in 2003, at which time her retirement age was 60. Her employer extended the PHI in 2007 to cover employees up to age 65.

The EAT upheld the Tribunal’s decision to strike out the claims considering the following points:

a) the PHI payments were received from the insurance company and the arrangement was subject to the terms of the scheme applicable at the time the Claimant started to benefit under it in 2003 i.e. with a retirement age of 60, which was not unlawful at the time (and this was also confirmed by the employer’s guide to company benefits);

b) the employee did not qualify for entry into the employer’s extended PHI scheme in 2007 because she was not an active employee during the qualifying period. This was because she was already claiming under the previous policy so the decision not to make payments beyond age 60 was not direct age discrimination by Gartner;

c) the employer’s contractual obligation (if there was one) was to take out insurance, not to make payments; and

d) the Age Regulations did not come into force until 2006 so there could be no issue of age discrimination.

All these factors contribute to the EAT’s finding that the reason the employee was not covered by the PHI policy was unrelated to her age. However this decision should be treated with a high level of caution. The EAT’s decision to strike out the application was made at preliminary hearing and on the basis of the parties’ written submissions. Ideally the issues in the case deserved fuller legal arguments to be heard at a substantive hearing.

Critically, insurance providers should be aware that employees could bring potentially bring these types of claims against insurers as a service providers who are also subject to the EqA. However the case is a helpful reminder for employers to review the PHI clause in their employment contracts to ensure that their liability is limited in the event that an employee is no longer covered under scheme rules.

Linking benefits with length of service

It is fairly customary for employers to offer employee benefits which increase or improve in accordance with employees’ length of service. For example, many annual leave policies provide that entitlement will increase incrementally for each year of service. Similar policies regularly exist for pay scales, company sick pay allowances, category of car hire, employer pension contributions, employee share schemes, amongst other benefits. The logic behind these policies is clear: they reward long service, encourage loyalty, improve motivation, and ultimately aim to retain those individuals in which the company has invested time and training resources. However these justifications and this logic is not always articulated, communicated, evidenced, or recorded.

Unlike other protected characteristics, both direct and indirect age discrimination can be potentially justified if the practice, criterion or practice (PCP) complained of is a proportionate means of achieving a legitimate aim (the “Objective Justification” test). The ECHR Code provides some useful examples of the Objective Justification test in action (particularly at paragraphs 3.36 – 3.41).

The reason we are concerned about this is that the types of policies which provide enhanced benefits based on length on service are prima facie indirectly discriminatory against younger employees. They appear to be neutral PCPs that employers would apply equally to others, but which in fact put or would put those who share the employee’s protected characteristic (i.e. their young age) at a particular disadvantage because they have not had the opportunity to qualify for the enhanced benefits.

While there is an exception in the EqA which allows employers to operate these types of policies to employees with less than five years’ service, without having to justify the differentiation. However, where benefits increase or improve for employees with five or more years’ service, employers must show that they reasonably believe that the differentiation fulfils a business need. This is a different test to the Objective Justification test, and is fairly easy test to satisfy. The reasons listed above shows some of the reasons employers can give to evidence fulfilment of a business need.


Click here to view the table.

For best practice, the ECHR Code also states that employers need evidence to show their reasonable belief that the business need is being fulfilled. In practice, this kind of evidence would be relatively easy to gather – this could be achieved through focus groups, employee monitoring, or even staff attitudes.

What employers can do in practice

If you operate a benefits policy which has varying application based on service, make sure you:

  1. ask “What is the business need we are fulfilling?”;
  2. record this thought process in an attendance note, email, memo, or policy; and then
  3. communicate this to employees as appropriate, either through individual letters or notifications of changes to benefits, in firm wide communications and policies, or even from the outset in the contracts of employment themselves.

As usual, the formality of the record and communication should be commensurate with company size, meaning that employers with thousands of employees and a full HR team should have more thorough records and evidence than small companies without a dedicated HR function.

As to be expected, there are many factors employers must consider carefully if operating a potentially discriminatory policy, and certain exceptions, which must be factored in to the decision to operate such a policy, and these factors should be recorded in one of the ways suggested above.