The anti-age discrimination time-bomb

Max Wright, consultant at Towers Perrin, explores the effect of the anti-age discrimination legislation in Europe

A stranger to European directives could be forgiven for supposing that age discrimination, like its race and sex counterparts, is clearly wrong, easy to spot and simple to legislate against. But the EU Employment Equality Directive (2000/78/EC) enshrined a framework which obliged EU countries to enact their own version of anti-age discrimination. As a result, multinational companies face a mosaic of regulation, uncertainty, and a ticking bomb of potential claims.

The European approach differs fundamentally from the US. In Europe the aim is not to protect older workers from discrimination but to ensure equality for employees of all ages. A consequence is that employers are likely to get at least as many claims from younger employees as older. For example in Ireland, the first country to enact the directive in its legislation, has found that the bulk of age discrimination claims are from younger workers seeking access to the workplace and parity of pay and benefits.

The European model protects all employees at all stages of employment against direct or indirect discrimination, harassment and victimisation. Anti-age discrimination, however, makes an important departure from its race and sex equivalents. Employers can rebut a claim of age discrimination if they can show objective justification. That means an employer’s action or policy can discriminate directly or indirectly where it represents a proportionate means of achieving a legitimate aim. (The test only applies to direct or indirect discrimination – harassment or victimisation cannot be justified.)

But variation from country to country is marked: in Germany for example, length of service is an objective justification. The UK views qualifying periods up to five years as acceptable – longer if the employer believes it satisfies a business need. In France and Spain, however, there are no automatic exceptions. The result: multinational employers face a regulatory kaleidoscope.

Made to measure
Because each European country has developed its own interpretation of the anti-age discrimination directive, employers must comply with the legislation in every jurisdiction where they operate. There is no pan-European one-size-fits-all answer. An approach mandated in one country may be disallowed in another.

Take something as fundamental as retirement age. Germany, Portugal and the UK have adopted a default retirement age of 65. Spain and Belgium have no default age, and in France employers can set a default retirement age if their collective agreement allows it.

The real sting in the tail comes when a practice or policy in one country is judged to be discriminatory and this renders the activity open to challenge in other European countries. With no central or national body to refer to for prior approval or opinion as to compliance, case law throughout Europe determines whether an employer is on the right or wrong side of a claim.

No-one can tell yet how big the threat is. Experience varies from country to country. Ireland’s long experience has seen age discrimination as the cause of 20 per cent of all employment claims. The UK expects it will make up ten per cent of all claims, but elsewhere they are rare – so far.

The problem is that limitation periods covering claims can be lengthy. If employees around Europe see others in Ireland and UK successfully claiming significant sums of money, they may be prompted to bring claims. Employers are at risk from claims arising from activities deemed discriminatory in another country. Despite their best endeavours, employers could still find themselves on the wrong end of a claim some years after setting up an ostensibly compliant policy.

So multinational employers face a conundrum. Do they adapt their practices to conform to law in each country, or do they establish a position to be followed throughout the company? Our view is that employers should tackle age discrimination consistently. Because legislative interpretation of the directive varies across Europe, that means, to be consistent, employers may wish to conform to a stricter interpretation in some countries even though those practices are not viewed as discriminatory in the local country.

In trying to formulate a Europe-wide view, employers are faced with a fundamental question about what equality means. Should they ensure equality of contribution towards HR programmes or of benefits received from them? Again, it depends. Is it discriminatory if a company offers a scheme that provides the same benefit for all, even if costs increase with age?

Damned if you do, damned if you don’t
In the UK, however, an employer can aim for either version of equality. So should an employer contribute an identical amount, say, to life assurance for all employees in a flexible benefits scheme with the result that the benefits are much lower for older workers, which they may claim is discriminatory? Or does the employer risk a discrimination claim from a young worker whose older colleague’s identical benefits costs much more?

It seems that a far wider spectrum of programmes is caught up in the legislation than originally expected. Holiday entitlement linked to length of service is widespread, culturally accepted and expected. Long service awards are common. Medical check-ups or examinations are often given to staff over a certain age, or provided more frequently. Notice periods can increase in line with service as does sick pay in many organisations. Not to mention the disparity between the eligibility for DB and DC pensions on the basis of start dates. All such benefits are potentially risky to employers.

A deep seated problem with the directive is that it does not recognise that inherent aspects of HR programmes are designed to reward length of service, to accrue value over time, and provide benefits in retirement. While it includes many exemptions in connection with retirement plans, the directive omits specific exemption for DB plans, nor is there any for age-related DC plans. Much, therefore, is left to national regulation and local interpretation, with compliance only assured by case law.

But it’s not all gloom. There are opportunities for employers willing to go beyond mere compliance and embrace the changing regulatory regime. Some well-prepared employers are taking advantage of the opportunity to get rid of expensive, discriminatory early-retirement pension provisions on the grounds of age discrimination. There is the possibility to both save costs and deliver hitherto age-related benefits in a more equal manner. And where desirable, employers may be able to defend existing arrangements on the basis of employees’ contractual rights.

By now, all employers should have reviewed their pensions and benefits plans to pinpoint any potentially age discriminatory elements and made a positive decision to remove the offending provisions, or keep them because they can objectively justify them. Scrupulous documentation is an absolute necessity. Employers should take a Europe-wide view, using a risk based approach, with the size of the risk and likelihood of a negative outcome the two main factors to be considered.