The Employment (Equality) Age Regulations 2006 (Age Regulations) came into force on 1 October 2006. Having been in force for two years, a number of cases are now coming to the employment tribunals looking at what amounts to age discrimination and how it can be justified. In addition, more high profile claims are being brought, such as that by Selina Scott (over the alleged failure by Channel 5 to appoint her as temporary newsreader) and the case concerning compulsory retirement, brought by the Age Concern offshoot Heyday, on which the Advocate General of the European Court of Justice has recently given his opinion. This edition of employment highlights will look at the recent cases on age discrimination, in particular those on justifying age discrimination.
The Age Regulations make it unlawful to discriminate on the grounds of age. Unlike other forms of discrimination, the Age Regulations are unusual in that both direct and indirect age discrimination can be objectively justified. In order to objectively justify any actions the discriminatory treatment must be “a proportionate means of achieving a legitimate aim”.
Regulation 33 of the Age Regulations entitles employers to have in place certain enhanced redundancy schemes. In order to fall within the exemption under the Age Regulations, the scheme must broadly follow the statutory redundancy scheme. Effectively, the amount must be calculated in a similar way to the statutory scheme, but in making the calculation the employer may treat a week’s pay as not being subject to a maximum amount, or multiply the appropriate amount allowed for each year of employment by a figure of more than one. In addition, the employer may also increase the total amount by multiplying it by a figure of more than one. In three recent cases, the employers imposed schemes which did not fall within the exemption in Regulation 33 of the Age Regulations, but enhanced the redundancy payments due to the employee in a more significant manner.
Macculloch v imperial chemical industries plc  eat
In this case heard by the Employment Appeal Tribunal (EAT) on 22 July 2008, the EAT considered the question of justification in relation to a claim for both direct and indirect discrimination in respect of a redundancy scheme. In this case, the employer, ICI, had a redundancy scheme which increased redundancy pay based on an employee’s length of service and age. The amount due to an employee under the scheme could differ greatly depending upon those factors. For example, an employee up to the age of 35 could be paid 58.33 per cent of relevant pay, whereas an employee aged between 50 and 57 who had been with the company for at least ten years could be entitled to 175 per cent of their relevant pay. The claimant in this case was made redundant at age 36 and after seven years’ service. Pursuant to the enhanced redundancy scheme she was entitled to 55 per cent of her gross annual salary. She claimed direct discrimination on the basis that she would have received a larger redundancy payment if she had been older and indirect discrimination on the basis that the lesser length of service was necessarily related to her age.
At the employment tribunal the main focus was on the issue of justification and therefore whether the scheme was a proportionate means of achieving a legitimate aim. ICI argued that the scheme was implemented to support a number of aims:
- To encourage and reward loyalty;
- To provide larger financial payments to older workers because they were more vulnerable in the job market; and
- To encourage people to leave who might otherwise not have done so, making available space for more junior employees.
The tribunal accepted that all of these were legitimate aims, that the scheme was a proportionate means of achieving those aims and that the same justification could be used for both direct and indirect discrimination claims. The claimant had therefore failed to show that that there was age discrimination and both claims were dismissed.
On appeal the EAT held that although the aims listed were legitimate, the tribunal had not properly considered whether the measures were a proportionate means of achieving those aims. Although the tribunal had not erred by considering the scheme as a whole, rather than the application of the scheme to the individual, the EAT considered that there had been the following failures by the tribunal:
- The tribunal did not consider the degree of difference in a payment made to the claimant and the comparator.
- The tribunal failed to show that it had addressed the proportionality exercise properly.
- The EAT therefore sent the case back to the same tribunal to consider the proportionality provisions.
Loxley v bae land systems (munitions and ordnance) limited  eat
The judgment in this case was delivered on 29 July 2008 and involved similar issues to those in the MacCulloch case. In this case, the enhanced redundancy scheme excluded employees who were 60 or over and also provided tapering benefits for those between the ages of 57 to 60. The rationale for excluding those over the age of 60 was linked to the fact that they were entitled to take their benefits under the company’s pension scheme at the age of 60. Although the compulsory retirement age was increased to 65 in 1996, until 1 April 2006 employees could still take their pension from the age of 60 without penalty to their accrued benefits. The claimant in this case was 61 and therefore was not entitled to any payment under the enhanced redundancy scheme. The employer argued that the scheme supported a legitimate aim and again the tribunal were required to consider whether it was a proportionate means of achieving the legitimate aim. The employment tribunal held that the principle of tapering redundancy payments, in order to prevent older employees from enjoying a windfall from redundancy in circumstances where they are shortly to retire, was a legitimate aim. In considering proportionality, the tribunal held that the scheme had been subject to various negotiations and had therefore been intended to strike a careful balance between employee and employer. On those grounds the tribunal considered that any age discrimination was justified.
On appeal the EAT held that the tribunal had not determined the matter correctly and made the following points:
- Preventing a windfall for employees nearing retirement can be a legitimate aim of a scheme. Since one of the purposes of a redundancy scheme is to cushion workers from the effects of losing their income, this is not required to the same extent where pensions are about to be paid.
- The fact that an employee is entitled to immediate pension benefits will always be a highly relevant factor which an employer can properly consider when determining what redundancy benefits the employee ought to receive.
The tribunal had to ask whether excluding the claimant from the scheme achieved a legitimate objective and was proportionate to any disadvantage which he suffered.
The EAT also noted that where a scheme is agreed with a trade union it is potentially a relevant consideration when determining whether treatment is proportionate.
In this case, the matter was remitted to be heard by a new tribunal.
Galt and others v national starch and chemical limited 
This was a judgment of the employment tribunal on 2 November 2007. Again, the case involved applications by claimants who felt that they had been treated less favourably than other employees by reason of their age in relation to an enhanced redundancy scheme. The enhanced redundancy scheme was a historical scheme which allowed employees to receive three weeks’ gross pay for each year of service when they were aged under 40 and four weeks’ pay for each year they were aged over 40. Clearly, those who were older benefited from the enhanced scheme.
The employer sought to argue that the legitimate aim of the scheme was that, if they had not offered the proposals which had historically been offered, there would have been industrial unrest. In considering whether the less favourable treatment of the claimants was a proportionate means of achieving that aim, the employer argued that the older workers ought to be financially favoured because they would find it harder to find new employment. However, the tribunal pointed out that this was not the disadvantage that the employer was trying to address. Therefore, the nature of the enhancement itself was relevant as to whether the aim was being achieved by proportionate means. Although the majority view in the tribunal was that while the purpose of offering the terms was a legitimate aim (i.e. to avoid unrest), it could not be said that the purpose of the disparate treatment inherent within those terms achieved that legitimate aim. Therefore, the claimants suffered unlawful discrimination.
Advocate General’s opinion in the Heyday case
Regulation 30 of the Age Regulations is an exception to the principle of discrimination on the grounds of age in that any dismissal of a person at or over the age of 65 where the reason for the dismissal is retirement does not constitute discrimination on grounds of age. Effectively, although employees can request to work beyond that age, there is a national default retirement age. Heyday applied to the High Court, arguing that a compulsory retirement age was contrary to the EU framework directive on equal treatment in employment (the Directive) and in addition that allowing justification of direct discrimination claims extended beyond the Directive. The High Court referred certain questions to the European Court of Justice (ECJ) for guidance and the ECJ Advocate General on 23 September 2008, gave his opinion.
The Advocate General said that the Directive is applicable to national rules, such as the Age Regulations, which permit employers to dismiss employees at age 65 or over by reason of retirement. It is however for the High Court to decide whether UK retirement rules are “justified” under the Directive. The ECJ in a Spanish case last year (Palacios De La Villa v Cortesiel Servicios SA) held that compulsory retirement, given the economic circumstances in Spain, could be justified. It is therefore for the High Court to determine whether the same conclusion can be reached in the Heyday case.
In addition, Heyday argued that the Directive requires the EU member states to identify a specific list of circumstances which are capable of justification rather than leaving employers free to argue justification in any set of circumstances. The question of justification for direct discrimination would have an impact on the cases referred to above. However, the Advocate General disagreed with the argument proposed by Heyday and held that it is legitimate to allow a general justification defence. In addition, the Advocate General said that Regulation 30 could, in principle, be justified provided that the Regulation is objectively and reasonably justified within the context of national law by a legitimate aim relating to employment policy and the labour market and it is not apparent that the means put in place to achieve that aim of public interest are inappropriate and unnecessary for the purpose. If the ECJ follows the Advocate General’s opinion then it will be for the High Court to consider if the rule on national retirement ages can be objectively justified in the UK.
What should employers do?
Many employers want to retain enhanced redundancy schemes which do not fall within the exception in Regulation 33. However, in doing so employers run the risk that any such scheme will be found to be discriminatory. In order to ensure that the scheme is legitimate what should employers do?
- Where possible negotiate any scheme with trade unions or employee representatives. Although this will not be definitive, it will assist in establishing justification.
- Any reason for differential treatment should be explained to staff and representatives. Any legitimate aim which is the reason for the scheme should be the one on which the employer is relying and where possible the evidence for this should be documented.
The question of justification will depend upon the facts of each particular case. In addition, employers may still be wary of retiring employees at the default retirement age. Indeed many claims are currently pending before the employment tribunal while the ECJ’s decision in the Heyday case is awaited. The Advocate General’s opinion is not binding upon the ECJ although it is followed by the ECJ in the majority of cases. The judgment of the ECJ is expected at the beginning of 2009. To be on the safe side, if an organisation is compulsorily retiring employees it should consider how it would justify retirement considering the legitimate aim and the proportionality issues considered in the redundancy cases set out above.