15th November 2008
Use of "length of service" in redundancy selection criteria not age discriminatory
In 2006 age was recognised alongside race, sex, and disability as unlawful grounds for discrimination with the introduction of the Employment Equality (Age) Regulations. But we are only just beginning to find out what this means in practice as test cases are gradually pursued. Employers are rightly asking what the impact of the regulations will be on recruitment, retirement and redundancy. This briefing will bring you up to date with the latest developments, in particular, the Rolls Royce v Unite and the Heyday case.
Background
The Employment Equality (Age) Regulations 2006 (the "Regulations"), which came into force on 1 October 2006, make it unlawful to discriminate on grounds of age. Unlike the other anti-discrimination law in the UK, the Regulations permit direct and indirect discrimination on grounds of age providing that it can be justified – discrimination will be "justified" where it is a "proportionate means of achieving a legitimate aim." This means that the courts have to undertake a balancing exercise between the discriminatory impact of the question and the employer's aim.
The Regulations also contain a number of "exceptions" – Regulation 32 permits an employer to treat workers differently based upon their length of service with respect to awarding benefits – although where the length of service used exceeds five years the employer has to show that its use fulfils a business need (for example, by encouraging loyalty or motivation). This is often referred to as the service-related benefits exception.
Reg 32: "(1) Subject to paragraph (2) nothing ... shall render it unlawful for a person ("A") in relation to the award of any benefit by him to put a worker ("B") at a disadvantage when compared with another worker ("C") if and to the extent that the disadvantage suffered by B is because B's length of service is less than that of C.
(2) Where B's length of service exceeds 5 years, it must reasonably appear to A that the way in which he uses the criterion of length of service, in relation to the award in respect of which B is put at a disadvantage, fulfils a business need of his undertaking (for example, by encouraging the loyalty or motivation, or rewarding the experience, of some or all of his workers)."
Rolls Royce v Unite
In the case of Rolls Royce v Unite, the High Court was asked to determine whether redundancy selection criteria which took account of length of service was lawful. This is the first reported case dealing with this issue.
On 17 October 2008, the High Court held that using length of service as one of the selection criteria for redundancy was lawful and did not fall foul of the age discrimination regulations. This comes as welcome news for employers carrying out redundancy exercises since length of service is regularly used during selection as it is a question of fact and wholly objective – something that is often difficult to reach in redundancy exercises.
The facts
The employer, Rolls Royce, entered into a collective agreement with the trade union, Unite, relating to redundancy which aimed to enable "peaceful restructuring" and "fair selection of employees." The employer and the union agreed an assessment matrix "designed to ensure that the selection process is fair."
The collective agreement stated that points would be awarded to each employee for a number of factors, including, self motivation, wider contribution to the team, application of knowledge etc. It was also agreed that that each employee would receive one point per year of service. In the usual way, those with the lowest scores were selected to be at risk of redundancy.
Rolls Royce was of the view that using length of service criteria in a redundancy selection process was discriminatory on grounds of age and applied to the High Court to determine the point. Specifically, the High Court was asked to determine:
- Whether length of service was a "benefit" under the Regulations (ie. a permitted exception to the general prohibition on discrimination on grounds of age); and
- Whether length of service was a proportionate means of achieving a legitimate aim – ie. justified.
Unite argued that the criterion was lawful, or otherwise justified.
The Decision
The High Court decided that use of length of service criteria, in this case, would be lawful under Regulation 32 (above) – which permits an employer to treat workers differently based upon length of service in relation to awarding benefits – since awarding points for length of service was a "benefit".
The High Court also stated that in any event, the use of such criteria, though indirectly discriminatory, could be objectively justified by Rolls Royce in line with the standard test.
Welcome news!
For employers going through redundancy selection, of which there has been a significant increase in recent weeks, this case confirms that length of service selection criteria may be lawful provided it only covers service up to 5 years or if the employer considers doing so fulfils a business need . Employers must note that using length of service alone - i.e. LIFO - will not be fair. Rolls Royce used length of service alongside other selection criteria.
This case is a useful reminder to employers that they ought to ensure that selection criteria are as objective as possible, be capable of being verified, for example, against attendance, performance and other personnel records, and non-discriminatory.
Rolls Royce has been given leave to appeal to the Court of Appeal so watch this space!
The Heyday case
The Advocate General (AG) has delivered his opinion in the Heyday case which impacts on the lawfulness of the UK's default retirement age. Employers and age campaigners are watching this case carefully; the implications could mean dramatic change in how Britons work over the lifecycle.
Heyday, an arm of the charity, Age Concern, claimed that the UK Regulations were incompatible with the European Equal Treatment Framework Directive (the "Directive"). Heyday claims the UK's default retirement age of 65 falls within the scope of the Directive and cannot be objectively justified. In effect, that dismissing staff on the grounds of retirement alone at 65 amounted to discrimination on the grounds of age.
The AG noted that the UK's default retirement age is covered by the Directive. This was to be expected as the European Court of Justice had already come to a similar conclusion on this in the Palacios case, discussed in the IPA Bulletin issue Number 63. The AG said that provisions allowing employers to compulsorily retire employees at 65 can be justified providing that the provision is a proportionate means of achieving a legitimate aim.
It is important to note that the AG's opinion does not carry any legal effect, therefore, for the time being, employers can continue retiring employees at 65 providing they comply with the prescribed statutory procedure, although those in the public sector may be more wary. Further, Employment Tribunal claims on this point that have been stayed pending the ECJ decision, will remain stayed despite the decision of the AG. It is worth noting that historically, the AG's opinion is usually followed by the ECJ, whose decision is expected early 2009. The Government has, in any event, committed to review the default retirement age in 2010 and 2011.
Jessica Bickers
Solicitor, Pinsent Masons LLP
