EEF's Response to the DTI Consultation Paper "Equality and Diversity: Age Matters"

1. Background

1.1. This response is based on extensive consultations with EEF regional Associations and member companies on the DTI’s consultation paper “Equality and Diversity: Age Matters” (‘the Consultation Paper’).

1.2. The EEF supports the principle that individuals should be judged on the basis of their ability and skills and not on stereotypes related to their age.

1.3. However, without exception, those who participated in our consultation believed that certain aspects of the proposals could negatively affect their businesses. We are concerned that, without modification, some of the current proposals will interfere with the ability of employers to run their businesses efficiently and competitively. Employers need greater flexibility and certainty than the current proposals allow.

1.4. Some of the proposals will have significant ramifications for matters not related to age discrimination in the workplace. In particular we are concerned about the effect of the Government’s proposals on retirement ages on state and company pensions. The Government should not introduce such measures without having first carried out a thorough review of their wider consequences.

2. Increasing litigation

2.1. The introduction of age discrimination legislation will inevitably lead to an unjustified flood of employment tribunal claims. Whilst we have no objection to employers who have acted unlawfully from being taken to a tribunal, we are concerned that the legislation will lead to an increase in unmeritorious claims.

3. Definition of discrimination

3.1. The definitions of direct and indirect discrimination must be drafted to allow employers to make decisions based on an individual’s ability to do the job, even if that person’s ability has declined as a result of age.

4. Justifying discrimination

4.1. We welcome the Government’s proposal to permit specific practices which would otherwise amount to direct discrimination where they are objectively justified by reference to specific aims and are appropriate and necessary. However, both the specific practices and the specific aims proposed are too limited.

4.2. The following additional specific practices are needed: · Redundancy· Allocation of job duties · A recruitment, selection and promotion practice which is wider is scope.

4.3. A general specific aim is needed which allows employers to take into account costs and other matters which are necessary to enable a business to run efficiently and competitively. Employers should also be able to take into account the consequences of altering a policy or practice, including the fact that a long-standing, well-liked benefit may have to be withdrawn from many employees and the legal difficulties involved in unilaterally altering a term of a contract.

4.4. In many cases, the data to back up a claim that a policy or practice is justified will not be available, even for these which are generally considered acceptable. Practical, realistic guidance is needed on the type of evidence required to show that a particular policy or practice is justified.

5. Certainty 5.1. Employers need certainty. Even with professional advice, it will not always be possible to predict whether an employment tribunal will find that a particular policy or practice is lawful. It would be helpful if non-exhaustive lists of the type of practices which might be justified were included in a Code of Practice or if there were a process by which employers could obtain prior approval of them.

6. Retirement ages

6.1. The EEF strongly believes that there should be a default retirement age of 65 years old. If there is no default retirement age or it is set at 70, we would have the following concerns: · Employees whose performance declines towards the end of their careers will be subjected to the indignity of performance/capability procedures. In addition, it may be difficult, especially for SME’s, to design and implement appropriate performance appraisal systems. · We are concerned that changes to retirement ages will influence state and company pension retirement ages. Retirement ages should not be altered until the Government has decided its response to the current reviews of the pension system.· The number of employees with serious illnesses and conditions, many of which might amount to a disability, will increase. Managing ill-health is never easy for employers, but will be made much more difficult with the added complication of potential age discrimination claims. · Employers will have no control over when employees choose to retire, and even raising the issue could amount to age discrimination. · Older workers may be retained at the expense of younger workers, because of the perceived risks of dismissing them. · 65 currently is perceived as the ‘national’ retirement age. · It will still be possible for an employee to agree with an employer to work beyond 65.

6.2. It is important that employers have the flexibility to fix their own retirement ages. The specific aims are currently too limited to allow more than a handful of employers to do this.

7. Redundancy

7.1. It is a good well-established practice to use length of service and/or age either on its own or as one part of a redundancy selection matrix. Age and length of service are also often used when calculating voluntary redundancy packages or enhanced contractual redundancy packages. The legislation must allow employers to continue such practices.

8. Unfair dismissal

8.1. The only effective way for an employer to protect itself from unfair dismissal claims arising out of retirement where it permits an employee to work beyond either a company mandatory retirement age or the default retirement age is for it to be able to agree a later enforceable retirement date with the employee. In such circumstances, the employer should be exempt from both unfair dismissal claims and age discrimination claims which arise from retirement on the agreed date. 9. Pay and non-pay benefits

9.1. Many pay and non-pay benefits which are based either on age or length of service, such as incremental salary scales, the provision of medicals or holiday entitlement, will amount to direct or indirect discrimination on the grounds of age and will be difficult to justify under the current proposals. Employers must be allowed to maintain such benefits, which are advantageous to employees as well as employers, preferably by excluding them from the age discrimination legislation.

10. Recruitment and selection

10.1. We are concerned that the proposals will force employers to use expensive and inefficient recruitment methods, designed to protect themselves from future litigation rather than the need to find the best person for the job.

10.2. In some jobs, it is not easy to describe the skill set required without using years of experience as a measure of proficiency. The legislation should make provision for this.

10.3. Graduate recruitment schemes are potentially indirectly discriminatory. Employers need to know in what circumstances they can continue to run such schemes.

11. Insurance schemes

11.1. Many types of employment related insurance premiums, such as vehicle insurance, health insurance and PHI cover, vary with age. The legislation must allow employers to take cost into account when deciding whether to offer employees certain types of insurance, even if this has an effect on job duties.

12. Pensions

12.1. It is very important that the introduction of age discrimination legislation does not adversely affect the costs of running occupation pension schemes as this will simply increase the number of pressures that are causing companies to review the long-term validity of retaining their schemes.

12.2. The legislation shall be drafted in a way that protects employers from potential age discrimination claims if they re-organise their occupational pension schemes in the face of increasing costs and changing business circumstances by, for example, closing defined benefit schemes to new members and offering defined contribution arrangements to new and potentially younger employees. If you have any queries about this response, please contact Charlotte Hagestadt (Legal Adviser) on 020 7222 7777.

B: EEF Response to the DTI Consultation Paper ‘Equality and Diversity: Age Matters’

1. Background

1.1. This response is based on extensive consultations with the EEF’s regional Associations and member companies on the DTI’s consultation paper “Equality and Diversity: Age Matters” (‘the Consultation Paper’). Our consultation generated a high level of interest as well as concern. Without exception, those who participated in the consultation believed that certain aspects of the Government’s proposals - in particular those on retirement age, redundancy arrangements and pay and non-pay benefits - could negatively affect their businesses.

1.2 The EEF supports the principle that individuals should be judged on the basis of their ability and skills and not on stereotypes related to their age. We also recognise the difficulties inherent in drafting legislation which aims to outlaw age discrimination. However, we are concerned that, without modification, some of the Government’s current proposals will adversely affect the ability of employers to run their businesses efficiently and competitively in the global market. In some circumstances, employers may be forced to make changes to their human resources policies and procedures which will create employee relations difficulties as well as be to the detriment of many of their employees. In other cases, the financial and administrative burdens placed on business are disproportionate to the benefits to individuals. In short, the legislation needs to give employers greater flexibility and certainty than the current proposals allow.

1.3 Given the complexity of the issues raised in our response and the interrelation between many of them with other legislation or current Government reviews, it is our view that the Government should adopt a cautious approach when implementing the Equal Treatment Framework Directive (‘the Directive’). Very careful consideration should be given to any proposals which might have implications for issues other than age discrimination. No such proposals should be implemented without undertaking a thorough review of their wider consequences.

2. Increasing litigation

2.1. Our extensive consultation indicated that EEF member companies are extremely concerned that the introduction of age discrimination legislation will lead to an unjustified flood of employment tribunal claims. Given that employees of all ages will be covered by the legislation, the potential increase in the number of claims is enormous. If there is no default retirement age or it is set at 70, employers will face even more claims. Over recent years, there has been an increasing trend for applicants to bring multiple claims in a ‘shotgun approach’ to employment litigation.[1] Even though many of these claims turn out to be unfounded, employers are still put to the cost and trouble of defending them.[2] It is therefore often cheaper for employers to settle such claims than to defend them, even where they are without merit. In our experience, defending discrimination claims is particularly time-consuming, complex and expensive.

2.2. Whilst we have no objection to employers who have acted unlawfully being taken to a tribunal, our member companies are genuinely concerned about the number of individuals who, it would appear want to ‘work the system’. We can foresee unmeritorious age discrimination complaints being tacked onto all sorts of other complaints. This will make it very difficult for employers to manage all manner of everyday employment issues and will represent a great burden on business, particularly for SMEs. There is a risk that the main legacy of this legislation will not be a reduction of age discrimination in the workplace, but will be extra red tape.

3. Definition of discrimination

Direct discrimination

3.1. The definition of discrimination on the grounds of age will have to be drafted carefully. We note that the Equal Treatment Framework Directive (‘the Directive’) does not oblige employers to employ someone who cannot do their job (see paragraph 17 of the Preamble to the Directive). However, we are concerned about situations where an individual’s competence declines gradually as he or she gets older. This should be reflected in the definition. An employer should be able to take such declining competence into account without a tribunal inferring that this amounts to discrimination on the grounds of age.

3.2. If, for example, we assume that it can be shown that dexterity declines with age, the following situations could arise in relation to a 55 year old:

· He/she is not selected for a job that requires a high level of dexterity because he/she is not dextrous enough.

· He/she is paid a lower performance bonus because his/her work rate is slower than other employees due to a decline in his/her dexterity.

· He/she gets a low score in a redundancy selection matrix for speed because his/her work rate is slower due to a decline in dexterity or for flexibility because he/she is only able to work on limited lines because of his/her declining dexterity.

3.3. In each of these situations, if the reduced dexterity were related to a disability, the employer would have discriminated against the individual on the grounds of his/her disability (subject to justification). We do not think that the same should apply to age, as this would prevent an employer from making decisions based on an individual’s ability to do the job. There is a clear difference between not hiring someone because he/she is 55 years old and not hiring someone because they are not the best person for the job because of an actual (not presumed) declining ability related to their age.

3.4. Some of the matters raised in the rest of this response will not be an issue if our suggestions in relation to the definition of discrimination are taken up.

Indirect discrimination

3.5. A crucial issue in any indirect discrimination claim relates to the “pool” that is used for comparison and careful consideration needs to be given to how this “pool” should be chosen. For example, if a 45 year old complains that he/she has been disadvantaged by a particular provision, who should he/she compare him/herself to: employees in their twenties, any employee who is older than him/her or all employees of a different age to him/herself? Furthermore, should the comparators work for the same company, in the same industry, etc.? Clear guidance will be needed on this point.

3.6. The issue of competence declining gradually with age is also relevant to indirect discrimination. Taking the example given at 3.2 above of situations which might arise if dexterity declines with age, in each case it might also be possible for the 55 year old to establish indirect discrimination if he/she could show that fewer people over a certain age would have the required dexterity. The legislation should specify that an employer is justified in taking an individual’s performance which has declined as a result of age into account.

4. Justifying discrimination

4.1. We welcome the Government’s proposal to take up the option in the Directive to permit specific practices which would otherwise amount to direct discrimination where they are objectively justified by reference to specific aims and are appropriate and necessary.

Specific practices

4.2. However, our consultation exercise has brought to our attention certain practices in our member companies which we consider to be reasonable but which would not be covered under the current proposals. The following specific practices should therefore be added:

4.3. There should be a specific practice which covers redundancy/workforce restructuring and redundancy payments:

· In some circumstances, it should be permissible to select someone for redundancy who is nearing the mandatory retirement age ahead of a younger person on the basis that the younger person is likely to remain with the company for longer, has more potential for development etc. The rationale for this would be similar to that for the facilitation of employment planning specific aim and the need for a reasonable period of employment before retirement specific aim. Whilst one or both of these specific aims might apply to such a selection decision, this is of no help if there is not an appropriate specific practice included in the legislation.

· Age (and service) is often an important factor in voluntary redundancy packages and enhanced contractual redundancy packages (see 7 for more details). There are a number of sound business reasons why employers adopt this approach and they should be given the ability to justify it.

4.4. There should be a specific practice which covers the allocation of job duties. To take one example, we know of member companies where the cost of insuring company vehicles for employees who are under 25 is significantly greater than for those over 25. Therefore, employees under 25 are not allowed to drive company vehicles. Since these vehicles are provided as part of the employee’s duties, we are not sure that this restriction could be classified as a specific practice in that it may not count as a non-pay benefit. However, it is possible that such a restriction could amount to a detriment and therefore be regarded as directly discriminatory.

4.5. The recruitment, selection and promotion specific practice should be extended as described at 10 below.

Specific aims

4.6. In our view, the specific aims proposed in the Consultation Paper are too limited and will prevent employers from continuing with certain policies and practices which are reasonable and necessary for their business and which are beneficial for many of their employees. In addition, it is impossible to anticipate every policy and practice that might prima facie be regarded as discriminatory, but which an employer has a sound business reason to keep.

Evidence

4.7. We are also very concerned about the type of evidence that employers will be required to produce in order to show that a specific aim is satisfied. They will need clear guidance, preferably in a Code of Practice, as to what type of evidence would be expected. Most employers, especially SMEs, simply will not have the data/information to show why they have adopted a particular policy or practice and whether this has been effective in meeting its aims. Moreover, many policies or practices have multiple aims. We are very concerned that individual employers will end up paying large amounts of compensation because they are unable to produce evidence/data to justify policies or practices which are generally considered perfectly acceptable.

4.8. In addition, the issue of justification must take into account the consequences of altering a policy or practice. If they are discriminatory and cannot be justified, employers may be forced to withdraw them, even where they benefited a large section of the workforce. Where the policy or practice amounts to a contractual term, this will mean seeking agreement to the change. Employees may not agree to a change which is to their detriment and so notice of termination will have to be given and the employees offered new contracts. Apart from the legal difficulties this can entail, this may often have a negative impact on employee and union relations, particularly if it involves removing a benefit that was liked by the majority of the workforce.

4.9. Some examples of practices which would not be covered by the specific aims proposed in the Consultation Paper are as follows:

· Many EEF members have apprentices employed under Modern Apprenticeship Agreements. These encourage employers to take on young apprentices, because currently the highest levels of funding are only available for those aged between 16 and 18 and no funding is available for individuals aged over 25. Although the recently proposed Skills Strategy contains consideration of how to address these funding disparities, the process is likely to be lengthy. The specific aims proposed would not cover an employer who has refused to recruit an apprentice who was over 25 as the employer’s reason for this decision would be cost.

· A few of our members have age-related pay scales for their younger employees (not apprentices), usually aged between 16 and 21. The rationale behind at least one such scheme is to ensure that these pay rates reflect apprenticeship pay rates, which is important for employee relations within the company. In our view, it is also relevant that it is and, we understand, will continue to be lawful to pay employees aged between 18 and 21 a lower National Minimum Wage (NMW). Employers who pay young employees more than the NMW, but less than older employees doing the same job, should not be penalised.

· Some insurance premiums vary with age. As mentioned at 11 below, we know of some companies that do not let allow employees under 25 to drive company vehicles because the insurance premiums are prohibitive. We have also come across some companies that do not provide employees over 65 with Permanent Health Insurance (PHI) cover or general health insurance because of the high cost.

4.10. We therefore suggest that additional specific aims should be included along the lines of the following:

· A specific aim akin to the “some other substantial reason” reason for dismissal (s98(1)(b) ERA 1996) which would be drafted to allow companies to take into account:

­ Cost, (including, in appropriate circumstances, the disproportionate increase in providing the benefit to individuals of different ages rather than the total cost to the employer); and/or

­ Other matters which are necessary to enable the business to run efficiently and competitively.

­ In both cases, consideration should also be given to the consequences of employers having to alter their policy or practice. These could include being forced to remove the benefit from all employees because it is too expensive to provide it to everyone, as well as the legal and employee relations implications of seeking to unilaterally alter terms in contracts of employment.

· A specific aim is needed to cover situations where the terms and conditions of groups of employees differ and the employer is not in a position to equalise terms. For example, this could be because some employees transferred from another employer under the Transfer of Undertakings (Protection of Employment) Regulations 1981 on different terms and conditions of employment. It is possible that the age profile of each set of employees could be different or that the transferred employees are contractually entitled to a discriminatory benefit. It is very difficult to change terms and conditions post transfer. Another example would be where company pension arrangements have been changed so that employees who joined more recently have a different pension scheme.

4.11. We note that some of the examples of the application of specific aims given in the DTI Consultation Paper relate to length of service. As such, they amount to indirect discrimination, rather than direct discrimination, and can be justified without reliance on the specific aims. We would expect employment tribunals to find that, where a specific aim is satisfied, indirect discrimination will be objectively justified. It is therefore important that the legislation or any guidance should confirm this.

4.12. Our comments on the specific aims proposed in the Consultation Paper are set out below.

Health, Welfare and Safety

4.13. More guidance will be needed as to how this specific aim will operate. For example, where employers only offer medicals to those above a certain age, will they need to be able to justify this by providing evidence that employees over that age are more at risk, actually have more days off sick, have more long-term illnesses or, possibly, the provision of medicals improves the health of older employees? It may not be possible for an individual employer to be able to provide this evidence and, as a consequence, they may decide to remove this benefit from everyone because it would just cost too much to provide it to everyone. Removing the benefit would be a breach of contract and would inevitably have adverse employee relations implications. (See [] below on certainty and [] on pay and non-pay benefits).

4.14. The legislation or Code of Practice needs to make clear that this specific aim entitles an employer to make a decision based on whether, by a certain age, the health, welfare or safety of a significant proportion of employees would be compromised and not on whether a particular individual would be compromised. This would be consistent with health and safety legislation and case law on an employer’s implied duty to take care of an employee’s health and safety. For example, although not every child whose mother flies frequently when pregnant will be harmed, some might be and there are therefore restrictions on all pregnant pilots and air crew. Therefore, where statistically there is a greater risk to health, safety and welfare by a certain age of doing a certain activity, an employer should not be liable for age discrimination if it takes steps to stop all employees of that age from doing that activity.

Facilitation of employment planning

4.15. This specific aim will only be helpful to employers if it is given a wide interpretation. It needs to allow employers to take into account the ‘big picture’ and make strategic, long-term decisions. There are good business reasons to have a mix of skills and ages within an organisation whether or not a number of employees are due to retire at the same time. In manufacturing, it has long been thought important to have a steady flow of skilled young people joining the industry in order to secure its long-term future. This is recognised in various Government initiatives, such as Modern Apprenticeship Agreements. In some companies, anticipating the pattern of retirement dates is also used when considering the number of redundancies that are needed or how many apprentices/trainees should be recruited.

The particular training requirement for the post in question

4.16. This specific aim will have a narrow application as the majority of jobs with training requirements will require individuals to have a number of years of experience or training, rather than be a certain age. Where age is a factor, it will usually be because of a legal requirement.

Encouraging and rewarding loyalty

4.17. Most policies and practices that are aimed at encouraging and rewarding loyalty are based on years of service and not age. Therefore claims will generally be for indirect and not direct discrimination. Where policies and practices are based on age, there may be a mixture of reasons not just loyalty, why an employer has adopted them. Further, whilst it may be possible to show that particular practices reward loyalty, the Government’s proposals imply that an employer would also have to show that they encourage loyalty. It will be extremely rare for an employer to be able to provide evidence which shows that, as a result of providing a particular benefit, employees actually stay longer. Would an employer who has a high turnover be unable to rely on this specific aim? There are many factors involved in why an employee stays in or leaves a job. This specific aim should therefore be changed either to ‘encouraging or rewarding loyalty’ or just to ‘rewarding loyalty’. Guidance on the type of evidence required will be needed.

A need for a reasonable period of employment before retirement

4.18. There are situations where it will not be cost-effective to recruit someone who requires particular training which may be expensive and time-consuming if they are nearing retirement age. For example, one of our member companies employs air traffic controllers and, in order to get a good return on the substantial costs of training, they would not consider recruiting someone who is nearing retirement age and would prefer to recruit younger individuals who are more likely to stay long enough for them to get a decent return on the costs of training. The value of this specific aim will be dependant on how widely tribunals interpret the word ‘reasonable’. If there is no mandatory retirement age, it will be more difficult for companies to assess whether an individual is likely to be in employment for a reasonable period before retirement as an applicant for such a job is unlikely to admit to planning an early retirement.

5. The need for certainty

5.1. The overriding message from our consultation exercise was that employers need certainty. Age discrimination legislation will permeate all parts of the employment relationship and will potentially affect employees of all ages. A potentially discriminatory benefit or practice could already be included in the contracts of many employees and, even with experienced advisers, it will not always be possible to predict whether an employment tribunal will consider a particular practice to be lawful. It will be even more difficult for SMEs as they do not generally have access to the same personnel and legal resources as larger companies.

5.2. We consider that it is unacceptable for employers to have to wait for a tribunal hearing to find out whether a particular policy or practice is lawful. Moreover, there is no guarantee that one tribunal will agree with another which subsequently considers the same issue. Taking the example of company retirement ages, we would find it very difficult to advise companies to set their own retirement age as the consequences of an employment tribunal finding that it was not justified would be devastating. The difficulties faced by employers will also be exacerbated by changing circumstances and the changing age profile of their employees which could render a lawful practice that has been incorporated into their contracts of employment in one year unlawful in another year.

5.3. In the light of this, some companies may well decide that it is better to do away with some practices or benefits before the legislation comes into force if they are unsure whether a tribunal will agree that the practice or benefit is justified – even where the practice or benefit was advantageous to the majority of the workforce. However, it is not easy for employers to alter contractual terms and doing so often negatively affects employee relations. Such changes cannot be made at short notice. Moreover, employers who want to compensate employees for the loss of a benefit which is removed because it has been or might be challenged by employees of a different age may find that such compensation would be discriminatory in itself.

5.4. We recognise that it will be difficult to provide employers with the certainty that they need on these issues. In our view, it would be helpful for employers if non-exhaustive lists of the type of practices or benefits which can be justified were included in the legislation or a Code of Practice. Consideration should also be given as to whether there could there be a process by which employers could obtain prior approval of particular practices or benefits. Other mechanisms to provide certainty may also be needed.

6. Retirement Ages

Default Retirement Ages

6.1. The EEF strongly believes that there should be a default retirement age for the following reasons:

· Employers are genuinely concerned that the lack of a default retirement age would result in an undignified departure for some employees whose performance was gradually declining towards the end of their career. Instead of employers feeling able to allow these employees to continue in their post, knowing that they will be retiring on a set date, they would be forced to initiate performance/capability investigations and procedures, which are likely to be very difficult and upsetting for all those involved. As one respondent to our consultation put it, “long-serving, valued employees would end up leaving with the sack instead of with a clock and good will.” This would adversely affect morale across the workforce. Whilst some commentators have dismissed such arguments on the basis that they are indicative of discriminatory assumptions about the performance of older workers, our members are genuinely concerned about the human impact of having to implement performance/capability dismissals for older workers. We also believe that, in most cases and in most jobs, performance will inevitably gradually decline with age at some point.

· In addition, we are concerned about the difficulties of designing fair and effective performance appraisal systems for older workers. It seems inevitable that certain aspects of such performance appraisals might themselves be viewed as discriminatory. For instance, looking at flexibility or speed could be considered to be discriminatory unless justified. The interaction with health and disability issues may also be very difficult to unravel. Some of our larger member companies have indicated that they are unsure how to design appropriate appraisal systems. Putting in place such systems would also be particularly burdensome for SME’s as they simply do not have the resources or expertise to introduce and manage the type of sophisticated systems that will be needed.

· If there is no default retirement age, there will be few incentives for individuals with declining health, who are off sick or may be off sick in the future, to choose to retire. An employee who is off sick remains entitled to holiday pay (Kigass Aero Components Ltd v Brown [2002] IRLR 312) and may remain entitled to benefits such as company cars as well as company sick pay or PHI benefits. In addition, the Government has stated its intention to introduce legislation in the near future that, subject to the rules of their company’s occupational pension scheme, would allow employees to be able to draw a pension from their employer whilst continuing to work for them.

· We understand that the incidence of serious illnesses/conditions which could amount to a disability under the Disability Discrimination Act 1995 increases with age. Without a default retirement age, the number of employees on an employer’s books who have a disability is likely to increase. Supporting individuals with disabilities can be very burdensome for employers, both financially and in terms of management time. Whilst at some point, an employer is entitled to dismiss an individual who has a disability, it is often hard to decide exactly when this is. We anticipate that employers will take a cautious approach, fearing the consequences of employees bringing both age and disability discrimination cases. It is difficult enough for employers to navigate through the complexities of handling a disability dismissal, without the added complication that an employee may also claim that he or she was dismissed because of age. We would therefore not be surprised if employers end up being more generous to older employees with disabilities than younger ones, thereby risking a claim for discrimination from younger employees with disabilities.

· Some of our members have had practical experience of age discrimination legislation in the USA. A number of them have commented that the impact of the age discrimination legislation in the USA has been to force companies to retain older individuals even where this was not in the best interests of the business, simply to avoid expensive litigation/settlements. Where older workers have been dismissed, it has normally been with a large pay off.

· We fear that in the UK employers will also be put in the position of having to retain older workers because the risk of dismissing them will be felt to be too great. This could well be at the expense of recruiting, promoting or retaining younger workers and, in some cases, could give rise to discrimination claims from younger workers. Employers will be placed in a “no-win” situation.

· If there is no default retirement age, employers will have no control over when an employee retires. Even if an employee indicates that he or she might retire at a certain age, the employer could not enforce this unless specific provision is made in the legislation. Indeed, it may well be regarded as discriminatory for an employer to open discussions with an employee about when he or she might want to retire. This will make it very difficult for employers to make employment planning decisions. It is unclear whether the retirement age specific practice will cover an employer seeking to agree with an individual that he or she will retire at a certain age, or whether it is aimed solely at employers setting a retirement age for a group of employers. In our view, it needs to do both.

· The existence of a default retirement age does not prevent an employer and employee agreeing that the employee can work beyond that date.

· Except in the rare circumstances where there is a company retirement age (see below), the removal of a default retirement age will increase and complicate the calculation of future loss for unfair dismissal and discrimination compensation.

Default retirement age of 65

6.2. In our view, and in the overwhelming opinion of the respondents to our consultation, the default retirement age must be set at 65 and not 70. Our reasons for this are:

· 65 is currently perceived as the ‘national’ retirement age by most people and most private or company pensions (as well as the state pension) can be drawn at 65.

· Retirement ages and pensions are inextricably linked. Until the Government has decided its response to a number of reviews on pensions issues – which will inevitably address the issue of the state pension age - we consider that it would be a mistake to tinker with what is generally perceived as the national retirement age. It should be noted that, during our consultation we have found companies to be suspicious about the connection between the proposed default age of 70 and a change in the state pension age.

· A number of companies have indicated that, if the Government introduces a default retirement age of 70, it will increase the likelihood that they will consider increasing the age at which an occupational pension can be drawn without any actuarial reduction from their current level to 70. This will have significant implications for pension provision. The Government must not raise retirement ages to 70 without giving careful consideration to this wider context.

· Although some companies have a retirement age of 60 or 62, a default retirement age of 65 would allow many companies to maintain the status quo. It should be noted that company mandatory retirement ages are linked into Company pension retirement ages in most cases.

· The concerns expressed above would still apply if the default age were set at 70. However, if it were set at 65, they would be less likely to apply.

Justifying mandatory retirement ages

6.3. We are strongly in favour of the Government’s proposal to permit employers to have their own mandatory retirement ages. It is important that employers have the flexibility to fix their own retirement ages, even if there is a default retirement age of 65, as some employers currently have retirement ages below 65. If there is no default retirement age or it is set at 70, then more employers will need to fix their own retirement age and this provision will become increasingly important.

6.4. As currently drafted, the specific aims are too limited. Without certainty that a specific retirement age will be justified, it will be very risky and potentially very costly for an employer to seek to set its own retirement age. The implications of an adverse tribunal decision would be massive and in large companies could affect many employees. Changing retirement ages will not be easy for companies and will have significant employee relations implications at a time when there is already a lot of unease amongst employees about the future of their pensions.

6.5. It seems that the only two specific aims that will be relevant to retirement ages will be employment planning and health and safety. In order to rely on either of these, companies would often need to have different retirement ages for different categories of employees. These categories might need to be very narrowly drawn such as toolmakers, fork lift truck drivers etc. This would be impractical. It would also cause practical difficulties when employees move between roles.

6.6. If an employer wished to rely on the employment planning specific aim, some guidance will be needed about what type of information will be needed. Will a general concern about the need for a mix of ages/new blood/ avoidance of promotion blocking be enough? If very specific concerns were needed, the difficulty would be that the circumstances are likely to change frequently necessitating a change of contract for relevant employees. This would not be viable as it would pose legal and employee relations problems and would involve a disproportionate amount of management time in terms of both monitoring and implementing changes. It may also be difficult for an employer to provide evidence that, for example, the loss of younger employees was actually and solely due to the fact that they did not think they would ever be promoted or be promoted quickly enough.

6.7. Where an employer wanted to rely on the health, safety and welfare specific aim, an employer might face similar difficulties. For instance, would they have to show that an individual employee could not work beyond the company retirement age or would it be sufficient to show that generally it was not in the interest of employees’ health to work beyond that age? In our view, it should be the latter. If it is the former, this specific aim could never be used in connection with company retirement ages because it would depend on each individual’s health when they reached a certain age.

6.8. See also our comments above at 4.2 on specific practices.

7. Redundancy

7.1. It should be noted that some of our member companies thought that it was unfair to reduce payments for older workers straight away, as this did not recognise that for some time after the legislation is introduced, it will remain more difficult for them to find employment.

7.2. However, we do not object to the proposed changes in the statutory redundancy scheme per se. However, we are concerned that removing the weighting of payments in favour of older workers will inevitably lead to pressure from both the trade unions and the age discrimination lobby to increase statutory redundancy payments for employees of all ages, which we would strongly oppose.

7.3. Of far more concern to EEF members is the potential impact of the proposed change in the legislation on the way in which companies select employees for redundancy and on how they choose to enhance statutory redundancy payments. Under the current proposals, the practices described below would amount to direct or indirect discrimination and none of the specific practices would apply. The specific aims would have only limited application. The practices referred to are as follows:

· Length of service is invariably used either on its own as a redundancy selection criterion (usually in the form of Last In First Out ‘LIFO’) or as one aspect of a redundancy selection matrix. We currently advise our members to try to use length of service as one criterion in a selection matrix because it is a very objective measure. Case law supports this advice (Williams v Compair Maxam [1982] ICR 156, Westland Helicopters Ltd v Nott EAT 342/88). Indeed, the experience of some of our member companies is that unions often argue that the only criterion should be LIFO. Using length of service as a selection criterion is potentially indirectly discriminatory and, if possible, the legislation should be drafted to make it clear the employers can use this criterion lawfully.

· Other criteria which are frequently used in selection matrices, such as flexibility, absence rates, work rate or experience, could potentially be discriminatory for younger or older workers. (See discussion of definition of discrimination ) If employers cannot use such criteria, it will become increasingly difficult to think of any meaningful measures of performance on which redundancy selection can be based. The legislation should take into account the need to use objective relevant criteria in redundancy selection.

· Length of service is also frequently used by companies when calculating the level of voluntary redundancy packages. Many companies quite deliberately seek to encourage volunteers by making this package more attractive to those with longer service in order to reward them and also because it is often possible to link voluntary redundancy to early retirement arrangements. This may be done in a variety of ways, such as mirroring the structure of the statutory scheme, which takes into account age and length of service, but removing the “cap” on a week’s pay, or by offering extra cash payments for those with a certain number of years’ service.

· Similarly, many enhanced contractual redundancy packages also take into account age and length of service, by enhancing the current statutory provision e.g. by doubling it or removing the “cap” on the amount of a week’s pay. Since the statutory scheme takes both age and length of service into account, this will amount to both direct and indirect discrimination on the grounds of age. Therefore, depending on the wording of their contracts of employment and policies, in many cases companies will need to make changes to their terms and conditions of employment or renegotiate schemes with their recognised union(s) to prevent their schemes being discriminatory. This will inevitably lead to pressure on employers to equalise upwards – a cost which many companies cannot afford. It could also potentially have an adverse effect upon employee morale as it is likely that employees will be concerned that the fact that their employer is changing their redundancy terms means that a redundancy programme is in the pipeline.

· The Consultation Paper indicates that statutory redundancy payments will still reflect service of up to 20 years. If this can be justified for statutory payments, the legislation should make clear that it can also be justified for voluntary redundancy packages and enhanced company redundancy packages. However, this still leaves employers with the problem of how to deal with payments which are weighted in favour of older workers (e.g. 1½ week’s pay for those over 41 years old, 1 week’s pay for those between 21 and 41 years old etc).

8. Unfair dismissal

8.1. The proposals in the Consultation Paper in relation to unfair dismissal indicate that an employee would not succeed in an unfair dismissal claim if he/she were allowed to work beyond the company’s normal retirement age or the default retirement age, but then retired at a later date. However, we are not clear how this would work in practice, unless the legislation permits an employer to agree with an employee that he or she will retire on a specified date, after the default retirement age or company retirement age. If the employee left on the specified date, then the legislation should make clear that the employer could not be liable either for unfair dismissal or age discrimination in relation to the retirement. Without such provisions, the employee could choose to leave at any point but any attempt by the employer to retire the employee would count as a termination of employment. It would be open to the employee to claim that this was for an unfair reason or a reason related to age. Unless employers can be certain that they will not end up facing an employment tribunal claim in relation to a retirement which takes place after the company or default retirement age, they will be reluctant to allow employees to work past the company or default retirement age or to take on older workers.

8.2. We are concerned that the effect of equalising the basic award to one week’s pay will lead to pressure to increase the amount of one week’s pay. It should be noted that some of the respondents to our consultation also queried whether it was right to remove age weighting for the basic award in 2006, given that it will be a while before the legislation changes attitudes sufficiently so that age is no longer a barrier to finding new work.

9. Pay and non-pay benefits

9.1. It was clear from our consultation that employers consider the issue of pay and non-pay benefits to be very important. Employers use pay and non-pay benefits to motivate, reward, attract and retain staff. Pay and benefits packages are often complicated and carefully balanced structures which have evolved over a number of years. In many cases, they are the product of years of negotiations with unions or have been inherited after acquisitions. Employers who have to alter their pay and benefit packages as a result of age discrimination legislation will encounter significant problems, both in implementing these changes lawfully and in terms of relations with their employees and unions. The consequential potential adverse effect on employee relations is far from trivial.

9.2. Furthermore, although employers will no doubt come under pressure to equalise upwards, they will often be unable to afford to offer a benefit which is currently only available to employees of a certain age or length of service to all employees. They may therefore be forced to withdraw it entirely to the detriment of many employees. Employers who do this will no doubt come under pressure to compensate for the loss of this benefit, but this in itself could amount to age discrimination.

9.3. Some examples of pay and non-pay benefits used in our member companies which are based on age or length of service are as follows:

· Incremental salary scales;

· Salary based on age for young workers;

· Extra days of holiday;

· Notice periods;

· Amount of contractual sick pay;

· Leave of absence;

· Bonuses for long service;

· Medicals;

· Moving those over 50 from shift work with no loss of wages;

· Part-time work on full pay in last year before retirement; and

· Enhanced redundancy packages, for compulsory and voluntary redundancy, which favour those with longer service.

9.4. Employers must be allowed to continue to provide benefits such as these without having to equalise upwards. This may not be possible under the current proposals, whether they are directly or indirectly discriminatory. For example, an employer provides an extra day’s holiday after five years’ service. This may be partly to reward loyalty but may also be to keep terms and conditions competitive or be for historical reasons, such as the result of a TUPE acquisition. We are not sure whether these reasons would justify its use. How will an employer be able to show that it is justified in only providing the benefit after 5 years’ service and not after 3 or 4 years’ service? There are also issues about what sort of evidence would be required or be realistically available.

9.5. If it is possible under the provisions of the Directive, we would like to see pay and non-pay benefits excluded from age discrimination legislation. If this is not possible, other measures will need to be taken. The specific aims should be extended and, as mentioned above, measures put in place to provide employers with a greater degree of certainty about whether the benefits they offer are lawful. However, other measures may also be needed to preserve such benefits.

10. Recruitment, Selection and Promotion

10.1. The EEF agrees that decisions to recruit, select or promote should be based on ability, not someone’s age.

10.2. We also agree that employers should be able to place an upper limit on someone’s age for the purposes of recruitment. However, in our view, the specific practice needs to have a much wider scope. The following two examples illustrate why:

· If a job requires some driving but it is far more expensive to insure a driver under the age of 25, an employer should be able to refuse to recruit those under 25. In these circumstances, employers should therefore be able to put a lower as well as an upper age limit on the age for recruitment, selection or promotion.

· An employer does not set an age limit on recruitment, selection or promotion for a particular post but an individual believes that he or she was not selected, recruited or promoted because of his or her age. Depending on the definition of discrimination (see above), the employer could be found to be liable for direct discrimination on the grounds of age. If this occurs, we do not think that this situation would fall within the proposed specific practice since no age limit had actually been set. However, in our view employers should be given the opportunity to justify their actions. Indeed, they may well be able to satisfy one of the specific aims. The relevant specific practice therefore needs to be extended to include such a situation.

10.3. We are also concerned that tribunals could interpret these provisions in such a way as to place a disproportionate burden on business when determining their selection and recruitment methods. To take the above example, a manufacturing company which is recruiting for a job which has high physical demands turns down an older applicant. That applicant believes that this was because assumptions were made by the employer on the basis of his or her age or about his or her physical abilities. We can foresee tribunals inferring that the reason for the applicant’s non-selection was his or her age, unless the employer had sought medical advice about the individual’s fitness and/or put him or her through a battery of physical tests. However, having to put every applicant through such tests would be very expensive, take too long and involve a disproportionate effort by employers. The legislation therefore needs to be drafted and guidance given so that employers are not placed in a position whereby shortlisting and testing decisions are based on the fear of litigation rather than finding the best person for the job.

10.4. Another important issue relates to requiring applicants to have a certain number of years’ experience. Whilst we can see the logic of the argument that someone with six years’ experience could be just as good at a job as someone with eight years’ experience, there are some jobs where it is hard to describe accurately the skills set required to undertake it without using years of experience as a measure of proficiency. If years of experience are not used, this could simply extend the recruitment process and involve much time-wasting. This is another area where clear guidance is needed.

Graduate trainees

10.5. A number of our member companies run graduate trainee schemes. Although there is usually no age limit set for recruitment purposes, most of them require applicants to have graduated within a certain number of years. Since a greater proportion of recent graduates are younger, indirect discrimination claims could either come from individuals who have graduated many years ago who wish to be considered for a position or from older non-graduates. Employers, especially SMEs, will simply not have the data available to show that a person who has recently graduated is actually better suited to the training scheme than others. Employers need certainty in this area. It will be very important for employers to know whether they can legally continue to run such schemes. Without certainty, many may simply stop their schemes.

11. Employment-related insurance

11.1. Our consultation has indicated that age is a factor in the level of premiums for and the availability of various types of employment related insurance – and not just employers’ liability insurance. For example:

· Health insurance. In an example given to us by one company, the premiums for those over 65 were 137% higher than the premiums for those under 65. Would the provision of cover only for employees’ children who are under 18 be regarded as discriminatory on the basis that workers with older children are more likely to be older themselves?

· Vehicle insurance can be much more expensive for younger drivers (and possibly for older drivers).

· Permanent health insurance (see below).

· Insurance which forms part of company pension schemes and which is linked to the pension scheme retirement age such as death in service benefits.

· We understand that it is not possible to obtain employer’s liability insurance for off-shore workers over a certain age.

· Travel insurance

11.2. In some cases, premiums for these types of insurance vary with the age of each individual covered. For group policies, the group policy premium can vary depending upon the age profile of the employees who are being covered. Some companies have also expressed concern that insurance companies will use changes to companies’ retirement ages to increase premium levels. In our view, insurance companies need to be consulted by the Government on how they will respond to the proposed age discrimination legislation.

11.3. There is also concern about whether it will be possible to obtain PHI cover at all for individuals over 65. If it is available, the increase in premiums may be prohibitive. In our experience, the provision of PHI cover can expose employers to very large liabilities (see Jowitt v Pioneer Technology (UK) Ltd [2003] IRLR 356, CA). If a contract of employment provides for PHI cover with no limit on age but the company’s retirement age is suddenly removed or increased, depending on the wording, the employer could be liable to pay an employee’s salary for a number of years.

11.4. Whilst it is not anticipated that increased costs of these types of insurance will prevent companies from employing individuals in the majority of cases, currently many employers take into account the cost of premiums when deciding whether or not to offer certain insurance cover to a particular individual. This can have an impact on job duties. They must be able to continue to do this but they would not currently be able to justify such decisions under the proposed specific aims (see 4.9).

12. Pensions

12.1. We note that the pensions ramifications of age discrimination legislation do not form part of this consultation and that the Department for Work and Pensions are considering this aspect of the legislation. We would like to be consulted by the Department for Work and Pensions about this aspect of the legislation.

12.2. It is very important that the costs of running occupational pension schemes are not adversely affected by the introduction of age discrimination legislation. These schemes are already facing a number of pressures that are already causing many companies to review the long-term viability of retaining them.

12.3. We understand that the Government intends to make use of the Article 6 exemption in the Directive which allows for the fixing of age in occupational schemes for admission or entitlement for retirement or invalidity benefits and we support this approach. However, we are concerned that some other aspects of occupational pension schemes, such as age-related and service-related employer contributions, could fall outside the scope of the Article 6 exemption. The legislation also needs to be clear about the following issues:

12.4. Whilst it may be possible to fix ages for retirement under an occupational pension scheme, what will be the position if an employee chooses to work past the scheme’s normal retirement age? Will the employer and/or the employee have to continue making contributions to the pension scheme? In our view, there should be no obligation on employers to do so.

12.5. Where an employer closes a defined benefit occupational pension scheme to new employees and only offers them a defined contribution scheme, will new employees (if most of them are younger) have a potential claim for indirect age discrimination? We feel that it is very important that the legislation should prevent such claims being brought as employers must be able to reorganise their pension arrangements without having to face the risk of such claims being brought against them.

12.6. What will be the position of voluntary redundancy packages under which companies often offer beneficial early retirement arrangements through their occupational scheme as an option for employees over a certain age? (See above)

13. Harassment

13.1. Employers will undoubtedly face difficult issues in relation to harassment. Clear, guidance will be needed on the types of behaviour that might amount to harassment. For example, should an employer be liable to pay compensation because an employee is given a birthday card with a mild ageist joke on it?

We hope that this response explains our views and the reasons for them clearly and comprehensively. However, should you have any queries about any aspect of this response, please do contact Charlotte Hagestadt (Legal Adviser) on 020 7222 7777.

[1] Out of over two thousand employment tribunal cases handled by the EEF in 2002, nearly one third included multiple claims.

[2] Only 4% of claims submitted by applicants in cases handled by the EEF in 2002 were upheld in employment tribunal proceedings.