The Employment Equality (Age) Regulations 2006 due to come in to
force in October 2006 will complete the implementation of the EU
Framework Directive and make discrimination on the grounds of age
unlawful.

One of the most common concerns amongst British employers is whether
they will still be able to reward an employee's loyalty with length of
service benefits without falling foul of the regulations. The answer to
this question is far from clear.

The draft age regulations (which are subject to change) provide that
service related pay or benefits based on up to 5 years' continuous and
non-continuous service are permitted, as are service related benefits
that mirror statutory requirements, for example redundancy
calculations. However, an employer will not be able to provide
employees with any pay/service-related benefits based on more than 5
years' service unless he/she has a legitimate reason. In addition the
employer will have to satisfy the following criteria:

  • Award the benefit to reward loyalty, to encourage motivation, or to recognise experience; and
  • Conclude that there has been a business gain resulting from the
    higher level of experience of staff or from rewarding loyalty or
    maintaining staff motivation; and
  • Apply the length of service criterion similarly to staff in similar situations

It is fair to say that the age regulations will restrict an
employer's freedom to provide his or her staff with benefits to reward
long service and loyalty. Perhaps the most common type of service
related benefit is entitlement to extra paid holiday. Dianah Worman
from the Chartered Institute of Personnel and Development is reported
to have said: "Extra holiday entitlement is an important way for an
employer to say to an employee, We're glad you have stayed with us all
this time. We appreciate your loyalty. Thank you very much.
" If
extra holiday entitlement is based on service of more than 5 years then
under the draft age regulations the employer will have to satisfy the
three conditions above or otherwise be at risk of legal action. There
is a real fear from employers' groups that employers will "play safe"
and remove all service related benefits to avoid fighting legal
battles, which is something the Government are keen to avoid.

The CIPD believes that employers rely on loyalty awards as a means
of employee retention. General research on the psychological contract,
according to the CIPD, shows that an employee who feels undervalued
does not perform as well. It may be that employers will need to present
statistical evidence to back up their claim that loyalty rewards
produce business gains.

When the ACAS guidance is published next year we may have clearer
information on how service related benefits will operate in practice
under the new legislation. In the meantime, employers are advised to
conduct an audit of their pay and benefits policies to prepare for what
may be the biggest shake up in employment law in years.

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