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Are we still in an age of long service benefits?

Thu 26 Sep 2013

This article first appeared in Employee Benefits magazine

The culture of long service benefits is well established in Britain.  Whilst the trend has moved away from the time-honoured carriage clock to gift vouchers and celebratory dinners, many employers continue to operate schemes rewarding long service as a way of acknowledging and appreciating employee loyalty, irrespective of the employee’s role or position within the organisation’s hierarchy.

When the Equality Act 2010 (“the Act”) was implemented, many employers became concerned about whether the practice of rewarding employees who had achieved long service milestones would fall foul of the Act, principally because such awards could give rise to age discrimination.  This is because employers who offer long service awards will almost certainly indirectly discriminate against younger employees who, simply because of their age (a protected characteristic under the Act), are less likely to have accrued long service when compared to their older colleagues.

Fortunately, the Act does contain comprehensive provisions in respect of long service benefits and such benefits will be relatively easy to justify for most employers.  However, employers should still proceed with caution, as unless they can rely on an exemption or justify the benefit, there is a real risk they will face claims by employees for age discrimination that, if successful, can result in uncapped damages against the employer.

What is indirect age discrimination?

An employer will indirectly discriminate against an employee by applying a provision, criterion or practice which is discriminatory in relation to the employee’s age if:

  • It applies/would apply to employees who fall within a different age group to the relevant employee;
  • It puts/would put anyone who is within the employee’s age group at a particular disadvantage when compared to other employees in other age groups;
  • The provision, criterion or practice puts or would put the employee at the same disadvantage as those in the same age group as the employee;
  • The discrimination is not a proportionate means of achieving a legitimate aim.

 

How can long service benefits be justified?

Under the Act, if long service benefits are based on length of service of up to five consecutive years, they will fall under the absolute exemption provided by the Act.  Consequently, if employers provide length of service benefits up to five years, they do not need to justify the potential age discriminatory aspect attached to such benefit.  This exemption is becoming increasingly relevant as it is now common for employers to offer benefits for shorter periods of service as a way of retaining employees in an environment where workforce loyalty and retention is becoming a real challenge for many employers.  

For benefits based on length of service over five years, employers can also justify any indirect age discrimination by showing that the long service benefit “reasonably appears” to fulfil a business need (another exemption within the Act).  This test is not overly prescriptive and it is not as onerous as the general indirect age discrimination justification, which requires employers to show the relevant provision, criterion or practice is a proportionate means of achieving a legitimate aim.   Therefore, many organisations can justify long service benefits on the basis that they are a way of rewarding loyalty, motivation or experience.  This will be especially important to industry sectors prone to a high employee turnover, for example, the retail trade.  Some employers are also referring to such benefits as “loyalty awards” rather than “long service benefits” to more accurately describe their underlying principle.

Employers should ensure they document the fact that they have considered the age discrimination implications of long service benefits and they should also record the reasonable rationale for believing the benefits are fulfilling a business need.   It would therefore be prudent for employers to conduct ongoing monitoring, including obtaining employee feedback, and regular reviews of their long term service benefits in order to protect their position. 

Jo Keddie is a partner in the Employment team at law firm Winckworth Sherwood. She was assisted by Danielle Crawford in writing this article.      

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