Extending the working life beyond 65

Discrimination is the area of employment law that provides employers with their thorniest problems. A further tranche of regulations on this topic will be introduced in the UK from 1 October 2006.

Employment legislation has been an ever-incoming tide for three decades in the UK and it is perhaps too easy to see the latest regulations as a further burden on employers. Yet the underlying economic case for such legislation is compelling, at both a national and company level.

It has been clear for some time that whilst we have had full employment, at company level there are significant skills shortages which can seriously affect corporate performance.

When combined with the obvious crisis in both occupational and state pensions, and the consequent funding problems for individuals, the case for action becomes inarguable.

Employers need time before the introduction of the new laws to review what prudent preparation they can make before the new obligations take effect.

It is not my intention to go into a detailed explanation of the new laws here; firstly, we are still only at the stage of draft regulations, which may well be changed before October, and secondly much of the advice currently available to employers is too legalistic.

This position will be remedied substantially by the guidance to be published by ACAS once the regulations have been approved by parliament.

The good news is that the government has learnt from the criticism of past employment laws and genuinely tried to make the new regulations user-friendly.

However, the bad news is that the legislation will be inevitably complex, in an area requiring cultural change as much as legal regulation. As with other discrimination laws the burden of proof will too easily shift to the employer to prove they didn’t discriminate.

The most publicised topic covered by the laws is the “normal” retirement age. A default retirement age of 65 has been proposed – if an employer wishes to retire an employee before that age they will carry the full burden of proof to objectively justify that decision.

If they wish to retire an employee at or above that age it will not constitute age discrimination, though the employer will be required to follow the prescribed procedure for “planned retirement”, a procedure modelled on the one recently adopted for flexible working on request by the employee and proper consideration by the employer.

Current employment contracts do not require notice to be given for retirement at the stated normal retirement age – the contract automatically comes to an end at that time.

That will change, for in future the employer must give written notice to the employee at least six months in advance of that compulsory retirement, at the same time notifying the employee of their right to request to work beyond the employer’s retirement age.

The employer has a “duty to consider” seriously any such request, which must be made between 12 months and six weeks of the retirement date, and must hold a meeting with the employee.

As with the flexible working laws, the requirements of the procedure, including such matters as timescales and the right to appeal, must be meticulously observed, but if employers can prove a business case for refusing a request together with transparency in the decision-making process, they cannot be challenged further and the statutory dismissal procedure will not apply. Should an employee believe the dismissal is for a different reason they will carry a heavy burden of proof to show this.

The government has committed to a review of the success of this process by the year 2011.

In practical terms many employers already allow some employees to work beyond normal retirement age, but are the decisions whether or not to do so invariably transparent and based on a sound business case? Could an employment tribunal come to the view that the employer’s refusal hides a performance, health or redundancy dismissal?

Let us hope that the Regulations, and the ACAS guidance on them, clarifies what appears to be potentially difficult territory, not made any easier by the uncapped awards allowed in discrimination cases.

Recruitment and training

In the four processes of recruitment, selection, promotion and training, using age as a criterion will be discriminatory, unless employers can provide solid evidence of a “legitimate aim” for doing so. Many lawyers anticipate this will be difficult, if not impossible; the only genuine occupational requirement so far identified is for acting jobs.

If challenged, an employer will not only have to provide supporting evidence for the decision, but also that it was “appropriate and necessary”.

Reward systems

The effects of this legislation will be just as wide-ranging in service-related pay and benefits, which are very common in UK industry, most particularly in the areas of holidays and sickness payments.

Although the new regulations provide exemption for such benefits linked to service of five years or less, beyond that threshold an employer will again have to justify the arrangement by reference to a legitimate business aim.

Current guidance suggests an employer will not have to provide evidence for the practice if he is “rewarding loyalty”. I doubt even the guidance from ACAS in due course will completely resolve this conundrum.

Many employers do not offer a variety of health insurances, or provide reduced benefits, to those employees over certain age thresholds, because of larger premiums. Cost alone will no longer be considered as an acceptable reason.

However, the majority of direct and indirect age elements in occupational pension schemes will be exempt from the new laws.

Redundancy

Firstly, the redundancy payments system will naturally have to change, as the statutory scheme has various age-related links.

The four present calculators of Statutory Redundancy Payment (SRP) for 18-21 year-olds, 21-41 year-olds, 41-64 year-olds and those over 64 will have to go.

Almost certainly SRP will be calculated on the basis of one week’s pay for each year of service, irrespective of age, and it has already been decided that the upper age limit for SRP will go, though the maximum service for calculation will remain at 20 years.

Secondly, selection for redundancy on the basis of age has rarely been an overt criterion, but will now become unlawful.

But if an employee is retired at 65, and by so doing loses all the redundancy entitlement due, will that retirement decision not be questioned?

Preliminary conclusions

It perhaps goes without saying that the new laws also protect all workers against both direct and indirect age discrimination, and that harassment and victimisation are also outlawed.

Finally, the upper age limit on complaints of unfair dismissal will be removed with effect from 1 October this year. That last sentence perhaps emphasises the importance and potential effects of these new laws better than any.

If you would like a user-friendly factual guide to the current state of play on this topic, in advance of what will be the authoritative advice from ACAS in due course, I would strongly recommend “Last chance: the essential guide to age discrimination legislation”, produced by The Employers Forum on Age and available on www.efa.org.uk

The EFA is an employer-led initiative to promote the business benefits of an age diverse workforce, and its six-page guide is an excellent summary.

Whether or not the Guide is used, every company should conduct an audit of its policies and practices, particularly such obvious areas as pay and benefits, redundancy selection criteria, and recruitment criteria and also an audit of the age profile of the workforce and those coming up for retirement.

This is not only to start the process of compliance with the upcoming regulations, but also to start the policy of gaining the most from people of all ages, both from amongst the company’s own employees but also from within the UK workforce at large.

Undoubtedly, some of the present recruitment problems can be eased if not solved by taking such a positive approach.