Age discrimination

Ageism laws, which came into effect on 1 October 2006, make it illegal for employers to discriminate in the workplace - directly or indirectly - on the basis of age. With no limit on the compensation that can be awarded to successful claimants, companies should take this legislation seriously.

Companies need to review their processes and benefits, as well as their cultural approach to issues such as talent management, succession, and people development, and some immediate action may be required. Organisations should already have taken some steps to ensure compliance with the new rules and avoid significant financial exposure.

The areas that companies should review include:

• Recruitment
• Policies and procedures, including appraisal and promotion
• Employee benefits
• Employee terminations, particularly redundancy
• Retirement
• Pensions

Age discrimination laws are designed not only to protect older workers, but those of all ages. Companies must be alert to any practices that may discriminate against anyone in their employment.

One main focus of the legislation is retirement. It is no longer legal, other than in exceptional cases, to have a retirement age below 65. Even at 65 or above, retirement cannot be automatic, and companies are now required to give employees six months' notice before retiring them as well as the opportunity to request to work on.

Legislation does take into account that there may be times when there are grounds for discrimination. Employers can defend their decisions under the 'objective justification' test, but will need to consider very carefully if the reason for their choice is legitimate.

In addition to recruitment practices, companies must review all benefit policies to ensure they are not discriminatory. Some schemes currently exclude workers of a certain age from a particular benefit or apply a length of service condition for eligibility. Other areas of risk include share plans; bonus plans and ill-health retirement schemes.

Pensions are also impacted. While occupational pensions were understood to be largely unaffected by the laws, there is devil in the detail and not all age-related provisions of schemes are protected by the exceptions which the laws contain. For instance, in certain cases special arrangements for higher earners may be vulnerable. The pension provisions in the legislation have been staggered, and will come into force on 1 December 2006, allowing for an extra informal consultation process aimed at assessing whether any amendments are required to the original regulations to provide greater clarity for schemes and employers, and reduce uncertainty.

It remains to be seen how widely these laws will affect companies, and any firm indications may have to wait until early decisions have been played out in the courts.

PricewaterhouseCoopers' team of specialists can help companies review their pension and incentive plans for compliance with the regulations, as well as with their internal policies and procedures.