The Employment Equality (Age Regulations) 2006 (the Regulations), which came into force on 1 October 2006, place an obligation on employers not to discriminate on the grounds of age.
Freshfields Bruckhaus Deringer” />An introduction to age discrimination law
The Employment Equality (Age Regulations) 2006 (the Regulations), which came into force on 1 October 2006, place an obligation on employers not to discriminate on the grounds of age. The Regulations prohibit both direct and indirect age discrimination, harassment and victimisation and entitle employees to claim protection from such discrimination in an Employment Tribunal. The Regulations confer similar obligations and rights on partnerships and their partners respectively.
A person is directly discriminated against if they are treated less favourably than someone else in comparable circumstances on the grounds of their age. In order to prove direct discrimination, a claimant must show that they were treated differently due to their age and not for some other reason. This usually involves a comparison with another person of a different age whose circumstances are not materially different from their own, with the exception of their age. Indirect discrimination occurs when a provision, criterion or practice is applied by an employer that has a disproportionate detrimental effect on employees of a particular age, although it may appear on the surface not to be discriminatory. For example a job advertisement which states that applications will only be accepted from recent graduates indirectly discriminates against older people.
However, unlike other areas of discrimination law, both direct and indirect age discrimination can be objectively justified (in other discrimination strands (such as sex and race) only indirect discrimination can be justified). This means an employer can potentially defend an age discrimination claim by establishing that the practice or policy in question is a proportionate means of achieving a legitimate aim. The onus is on the employer to show that the discriminatory treatment is necessary in order to meet the legitimate aim it seeks to rely on. The employer must also show that the need for that particular treatment outweighs its discriminatory effect and the aim cannot be achieved by an alternative approach which would have a less discriminatory impact.
Bloxham v Freshfields Bruckhaus Deringer was the first major case surrounding the age discrimination legislation and attracted considerable attention within the legal profession. The tribunals judgment provides some assistance as to how age discrimination may be justified.
Background to the case
Bloxham was a former partner of Freshfields who brought claims of both direct and indirect age discrimination against the magic circle law firm following changes it had made to its partners pension scheme.
Freshfields pension scheme worked by allowing retired partners to continue to share in the profits of the business based on the number of pension points each had accrued during their active partnership. This was subject to a cap whereby no more than 10 per cent of the firms profits each year could be paid out as retirement benefits.
Over the years the ratio of pensioners under the scheme compared to current partners grew. This meant the younger partners were paying out a far greater percentage of their profits to fund retirement benefits than previous partners had had to and yet they faced the prospect of receiving a decreasing pension when they themselves came to retire as they would be subject to the 10 per cent cap.
In the light of this, the firm decided that the pension scheme needed to be reformed in order to provide an arrangement that was more financially sustainable and fairer to the younger partners.
The new pension scheme
The firm consulted the partners over the various options that were available and gave them the opportunity to put forward alternative proposals. After some considerable discussions, the scheme was replaced with a less generous arrangement on the 1 May 2006. It had the support of 78 per cent of the partners.
In order to mitigate the effects of the reforms on those closest to retirement, the partners agreed a transitional period in which those partners aged 50 or over could elect to retire on the terms of the old scheme before the implementation date of the new arrangements. However, under the old scheme, only those over the age of 55 qualified for the full pension; those who retired between the ages of 50 and 54 suffered a percentage reduction on the level of pension payable.
As Bloxham was aged 54 at the implementation date of the new scheme, his options were to either retire prior to this date under the old scheme and receive a 20 per cent reduction in his pension, or remain at the firm until he reached 55 and retire under the new, even less attractive, scheme. He claimed that the changes in the pension arrangements therefore forced him to retire early and take a cut in his pension and consequently he was being discriminated against on the grounds of his age. He reportedly claimed 4.5m in compensation.
The Tribunals decision
The tribunal held that Bloxham had been treated less favourably than partners aged 55 or over as, being only 54, he was subject to a 20 per cent reduction. However the tribunal found that this less favourable treatment was justified. Modification of the pension scheme to make it more financially sustainable and fairer to younger partners was held to be a legitimate and necessary aim and the firm had successfully demonstrated that the amendments were a proportionate means of achieving this aim.
Points to note
The tribunal placed considerable importance on the fact that the firm had only implemented the changes following extensive analysis (including taking expert advice from an accountancy firm), a long and thorough consultation period with the partners, and full consideration of any possible alternatives. Perhaps the decisive argument was that, even by the end of the tribunal proceedings, Bloxham had been unable to put forward a less discriminatory alternative than the changes that were ultimately implemented.
It is reassuring for law firms and employees generally that the tribunal recognised it is sometimes inevitable that eliminating inequality for one age group will have an adverse effect on another age group and that it is therefore important that cases of age discrimination are considered in context. For example, in this particular case it was significant that the reforms were being implemented to address the fact that the original arrangements were operating unfairly towards younger partners, a problem that would only worsen if the reforms were not implemented.
Although the outcome of this case turned on a particular set of facts and, being a first instance decision, is not binding on other tribunals, it will be of some comfort to employers who are attempting to eradicate historical age discrimination in the face of competing employee interests. It also gives some useful guidance on the justification of discrimination on the grounds of age and the procedural steps that employers should take, particularly in terms of the level of consultation and preparation required, to ensure they are in the best position to defend any such claims.
Paul Fontes is a partner and Jackie Denham a solicitor at Eversheds