UK: Bumper New Year Edition - That Age Old Problem Won´t Retire

In a previous bulletin, we discussed the impact of the Employment Equality (Age) Regulations 2006 ('the Regulations') that came into force on 1 October 2006. The Regulations protect employees, applicants and contract workers from discrimination, harassment or victimisation on the basis of their age (or perceived age). Just as employers are updating their processes to conform to the Regulations, a recent High Court action may force us all to rethink our approach.

Heyday, the membership organisation for people planning for, or already in, retirement (and which is backed by Age Concern), is seeking judicial review of the Regulations. The Regulations implement a European Directive, which was designed to promote equal treatment in employment and which prohibits age discrimination in the workplace. The Regulations remove the upper age limit for unfair dismissal claims and also give employees the right to ask to work beyond 65. However, the Regulations also state that it is lawful to retire a person at/or above 65 as long as the employer complies with the requirements of providing notice and the duty to consider any request to continue working

Heyday considers that enforced retirement at the age of 65 or over, even subject to compliance with the procedure, is direct discrimination on the grounds of age and is therefore unlawful under the European Directive. The Government argues that the discrimination is objectively justified, and therefore lawful, on the ground that it assists employers to prepare for the future.

The High Court has now referred the issue to the European Court of Justice (the 'ECJ') for guidance. If the ECJ rules that the Regulations do not fully implement the European Directive, the Government will be forced to amend the legislation to give those at or over the age of 65 the same protection as younger workers. Even before any such amendments are made, the response of the ECJ will have particular effect on employers in the public sector because all public sector employers are regarded as bound by European Directives in the event that a domestic government has failed to implement that Directive accurately or at all. Private sector employers would not face the same problems initially; however there would clearly be pressure on the Government to change the law quickly to avoid a two-tier situation of public sector versus private sector.

The effect on public sector employers of a ruling that the Regulations are unlawful could be very serious. Any person who considers that their public sector employer forced them to retire at/or over the age of 65 under the Regulations may potentially have a claim. This state of uncertainty will continue until the ECJ issues its guidance, until then cases will be stayed. In the meantime, the potential cases could pile up. If the Regulations are considered unlawful, the potential claims could relate to retirements that happen at any time under the Regulations, both before the ECJ ruling and after it. The impact is that despite complying with the law of England and Wales, employers could be found to be acting unlawfully under European law. The usual time limit for a claim under the Regulations is three months from the date of the discrimination. However, an Employment Tribunal is able to extend the limitation period where it considers that it is just and equitable to do so. Alternatively, if a claim can be brought under the Human Rights Act 1998 for an unlawful infringement of human rights by a public body, then the limitation period is a year from the date of the act complained of. There is also the possibility of an extension if the court or tribunal considers it equitable, having regard to all of the circumstances. Whether the limitation periods can be extended and for how long is a question for each case based on its facts.

Recent advice in preparation for 1 October 2006 and beyond has been to set all retirement ages at 65 and to implement the prescribed procedures to ensure that most, if not all, employees retire at 65. Should the ECJ find the Regulations unlawful then the position may be that it will be safer for employers to avoid implementing a retirement age at all. That will ensure that the employer does not fall foul of the Directive and discriminate on the grounds of age. However, the problem that employers will then face is that the workforce will have no set date to retire. With employees being able to retire when they choose, employers will face significant problems in planning for the future of the workforce.

Given that references to the ECJ can take around 18 months to be resolved, there is no quick answer to this point. The High Court took the decision to refer this to the ECJ in early December 2006, however the exact questions for the ECJ will not be formulated later this month or February 2007. Employers will need to keep a watch for the response and be prepared to react quickly to avoid unwittingly breaching the Directive. In the meantime, employers should continue to comply with the Regulations as they stand from 1 October 2006.

In October 2004 the Employment Act 2002 (Dispute Resolution) Regulations were introduced. The new rules were widely publicised as an instrument that would enable employment tribunals to handle their growing caseload more effectively and efficiently, reducing the cost and waste of management time by encouraging the resolution of disputes through dialogue rather than litigation.

The Government had been placed under pressure to do something about the volume of claims being brought before employment tribunals. The number had trebled over the course of the 1990's and reached a peak of 130,408 in 2000. According to the Government, employers with written procedures were more likely to reach a settlement or have an application against them withdrawn than employers without. A particular concern was the lack of procedures operated by small employers (with less then 250 employees), who accounted for a disproportionately high share of tribunal claims. Although such businesses only accounted for 18% of the workforce, they featured in nearly 30% of tribunal applications.

The Government's proposed solution was the introduction of the Employment Act 2002, which places obligations on employers and employees alike to follow certain minimum basic procedures in relation to disciplinary and grievance matters. The objective was to assist employers and employees to resolve their differences without the need to resort to litigation, to reduce costs and wasted time of the parties as well as the employment tribunals. Unfortunately, the procedures have not achieved their aims. After falling initially, the number of claims lodged with employment tribunals rose in 2005 from 86,181 to 115,039, back to the levels of 2003-2004.

However, in relation to very small employers the Regulations may have had the intended effect of settling claims but not, it appears, for the right reasons. The CBI employers' organisation conducted a survey in September 2006, which reported that 100% of companies with fewer than 50 staff had settled every claim out of court despite advice that they would win almost half the cases. The reasons cited for this were cost and the fact that they see the employment tribunal as being too adversarial.

On 7 December 2006, Alistair Darling, Trade and Industry Secretary, announced an expanded Government review of the framework for settling disputes between employers and employees. The review will be led by Michael Gibbons (a member of the DTI's Ministerial Challenge panel) and will involve representatives from businesses, unions and employees. It will build upon the work done in compiling the Government's 'Success at Work' policy statement, which was published in March 2006.

Alistair Darling has cited the aim of the review as "[to] work out how the Government can best deliver our common aim of faster and better dispute resolution". He also said that "By reducing the number of disputes, and resolving those that do happen more quickly, we can raise the UK's productivity and ensure better employee relations. We can also cut the cost of dealing with disputes, which can be substantial."

Michael Gibbons is due to make his eagerly anticipated recommendations in Spring 2007.

New Year, New Cap

The new limits on statutory awards were announced in November and will apply to dismissals taking effect on or after 1 February 2007. The statutory cap for unfair dismissal will be increased from £58,400 to £60,600. The minimum basic award for defined dismissals (such as trade union dismissals or health and safety dismissals) will be increased from £4,000 to £4,200. At the same time, the cap on a week's pay for the purposes of calculating the basic award for unfair dismissal and redundancy payments will increase from £290 to £310.