Under the age discrimination legislation, employers can use length of service up to five years as a criterion for awarding pay and benefits (such as increased holiday or sick pay entitlement) without having to justify doing so, even though this may mean younger workers receive fewer benefits than older employers.
Where benefits are awarded on the basis of workers having service of longer than five years, the regulations provide for a less stringent test of justification than normally applies in discrimination cases.
The less stringent test is whether it reasonably appears to the employer that using service as it does fulfils a business need.
The general approach of the age discrimination legislation appears to have been vindicated by the ECJ case of Cadman v HSE (C-17/05) which holds that, under EU discrimination law, employers can normally rely on length of service as a criterion for awarding pay and benefits without having to justify doing so.
The Court lays down an important qualification to this general rule, however. Where the claimant puts forward evidence that raises ‘serious doubts’ about the appropriateness of using length of service in the particular circumstances, the employer will be required to justify reliance on it in detail. Claimants are only likely to be able to do this where they can produce evidence that performance and ability in the role do not, at least after a certain point, improve with time served.
As ever with ECJ decisions, the full meaning and implications of this decision remain to be worked out in later cases. For the moment, the case does not require employers to change their pay and benefits policies if they comply with the new age discrimination legislation (see the EEF Guide, Avoiding Age Discrimination).
DETAIL
The European Court decision in Cadman v HSE has attracted considerable press coverage, with both employers and the sponsoring trade union, Prospect, claiming victory. We examine what the case actually decided and its relevance for EEF members.
The case was an equal pay claim, where the woman claimant and the men she was comparing herself with were doing the same jobs but the men were paid more on account of their longer service. In that sense, the case has more bearing in the public sector where service-related pay scales have been common. It does, however, have a bearing on service-related benefits (such as additional holiday, increased sick pay entitlement, admission to health care schemes, etc) which are common in manufacturing. These are vulnerable to challenge both under age discrimination and sex discrimination/equal pay laws.
The legal issue concerns indirect discrimination, where a provision is applied equally to everyone but has an unfavourable effect on a particular group. In the Cadman case, the service-related pay scales were applied equally to men and women but women, on average, were paid less than men because they had shorter service because of taking time out to raise a family. Under EU law, where a prima facie case of indirect discrimination is made out, as in this case, the employer will normally be liable unless it can show that the provision in question was a proportionate means of achieving a legitimate aim.
However, in a 1989 decision (Danfoss, C-109/88), the ECJ had held that employers do not have to justify reliance on length of service as a reason for different pay rates (even if that results – because women tend to have periods out of the workforce and thus shorter service - in women being paid less than men).
In Cadman, the Court of Appeal in effect asked the ECJ whether that ruling still held good. This was because (a) in the intervening period the test of justification has, if anything, become more stringent; (b) in any event, the ECJ has normally held that whether something is justified is a matter for the national court; (c) it may be open to doubt whether length of service invariably equates with experience.
In response, the ECJ in Cadman reaffirmed the earlier ruling in Danfoss. It held that the employer does not have to provide special justification for recourse to length of service as a criterion for awarding pay and benefits.
In terms of the test of justification (proportionate means of achieving a legitimate aim), the ECJ held that rewarding experience that enables the worker to perform his duties better is a legitimate aim. Further, as a general rule, recourse to length of service is appropriate (i.e. proportionate) to achieving that end. It is therefore justifiable.
As a general rule, employers are therefore free to reward service without having to establish the importance it has in the performance of the specific tasks of the employee. The case is therefore favourable to employers.
The qualification the ECJ put on this, however, is that, where the employee provides evidence capable of giving rise to ‘serious doubts’ as to whether in the particular circumstances using length of service as a criterion for the award of the pay or benefits was appropriate to achievement of the aim of rewarding experience that enables the worker to perform his duties better, the employer will have to justify reliance on that criterion in detail.
The outcome is that under EU sex discrimination or age discrimination law, employers will be able to rely on length of service without having to justify doing so, unless the claimant can raise ‘serious doubt’ about its appropriateness. Certainly, it is going to be very difficult for claimants to raise serious doubts about whether longer service brings greater experience and hence better performance in the job in relation to short periods of service - up to, say, five years. There may, however, be jobs where it is possible for a claimant to demonstrate that, after a period, employees simply do not get any better at the job no matter how long they do it.
An employer might, for example, award an increase in holiday entitlement to employees with twenty years’ service. If few women employed by the employer ever achieve twenty years’ service and a female claimant can show evidence that any variations in job performance between workers are unrelated to how long workers have been doing the job, then the employer may be required to defend the decision to require twenty years’ service in detail.
Two unanswered questions arise from this ruling –
- How easy or difficult will it be for an employee to persuade a tribunal whether there are serious doubts about the appropriateness of awarding pay and benefits according to length of service?
In our view, the Court’s reference to the need for evidence and the reference to ‘serious’ doubts indicate that it is not intended to be easy for claimants to displace the general rule.
- Is the court’s reference to long-service equating with experience and hence with improved performance in the job intended to exclude as potential alternative justifications for service-based benefits such as a desire to reward loyalty or to enhance motivation?
The age discrimination legislation mentions as examples of potential justifications for awarding benefits based on long service a business need to encourage loyalty or motivation, as well as rewarding experience. The Cadman decision assumes long service is rewarded because it equates with experience and hence better performance but that may not always be the case. In our view, other business needs should not be ruled out as valid justifications (though perhaps, following Cadman, open to challenge where the employee can raise serious doubts as to whether the benefit does indeed fulfil the alleged business need).
Both these questions, however, await answers from the UK courts and, in particular, the decision of the Court of Appeal when the Cadman case is sent back to it.
Overall, however, this case vindicates the approach the Government has taken to service-related benefits in the age discrimination regulations which came into force on 1 October. These provide that an employer does not have to justify reliance on service of up to five years. Where longer service is required to attain a benefit, the employer has to show that it reasonably appeared to him that using service in this way fulfilled a business need – a less onerous test of justification than normally applies in discrimination law.
For EEF member companies, if they award pay and benefits according to length of service, no action is currently required to change their current practice so long as, if the required service exceeds five years, their practice reasonably appears to fulfil a business need.