IPEBLA 2009
WORKSHOP 7
EUROPEAN DEVELOPMENTS
Jane Marshall (UK), Grégory Olczak-Godefert (France), Frances Phillips Taft (US),
Wijnanda Rutten (the Netherlands) and Susan Serota (US)
1
2
THE EUROPEAN FRAMEWORK DIRECTIVE ON EQUAL TREATMENT (2000/78/EC)
1.1
On 27 November 2000, the Council of Ministers of the European Union adopted the Council
Directive 2000/78/EC “Establishing a general framework for equal treatment in Employment
and Occupation” (hereinafter the “Framework Directive”). A copy of the Framework
Directive is attached hereto at Appendix “A.”
1.2
The Framework Directive was to be transposed into national law by 2 December 2003 but
under Article 18 of the Framework Directive, a member state could opt to wait a further three
years (to 2 December 2006) before implementing the provisions concerning age
discrimination, “in order to take account of particular conditions.”
1.3
All member states have now transposed the Framework Directive, including those who
requested an extension of the deadline allowed by the Directive with regard to the “age
ground.” Some member states have gone through an extensive review on what the
Framework Directive requires, while others have not. The European Commission has sent
reasoned opinions to several member states requesting that they fully implement the rules set
out in the Framework Directive.
THE FRAMEWORK DIRECTIVE
2.1
The Framework Directive prohibits employment discrimination on the grounds of religion or
belief, disability, age or sexual orientation. Age is one of the four protected grounds.
2.2
The Framework Directive applies to all persons, the public and private sectors, including
public bodies, in relation to, inter alia, conditions for access to employment, to selfemployment or to occupation. The Directive defines employment and occupation, in Article
3, in very broad terms as including access to employment, recruitment, promotion, all types
and levels of vocational training, working conditions, pay, dismissal, and membership of or
involvement in employers’ bodies, trade unions and other professional organisations.
2.3
The objectives of the Framework Directive in terms of age are set out in the Recitals and are
stated to include “the need to take appropriate action for the social and economic integration
of elderly and disabled people.” (Recital 6) It also refers specifically to the Employment
Guidelines of the European Council and refers to “the need to pay particular attention to
supporting older workers, in order to increase their participation in the labour force.” The
recitals clarify that the scope of the Framework Directive does not include social security and
social protection schemes, but does include occupational pensions. (Recital 14)
2.4
The Framework Directive prohibits any discrimination, whether direct or indirect. Direct and
indirect age discrimination are defined as follows:
(a) Article 2.1: direct discrimination shall be taken to occur where one person is treated less
favourably than another is, has been or would be treated in a comparable situation, on any
of the grounds referred to in Article 1;
(b) Article 2.1: indirect discrimination shall be taken to occur where an apparently neutral
provision, criterion or practice would put persons having a particular religion or belief, a
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particular disability, a particular age, or a particular sexual orientation at a particular
disadvantage compared with other persons unless that provision, criterion or practice is
objectively justified by a legitimate aim and the means of achieving that aim are
appropriate and necessary.
2.5
The Framework Directive also prohibits age-based harassment, which is deemed to be
discrimination, or victimisation connected to complaints of age discrimination. (Article 2.3)
The concept of harassment may be defined in accordance with the national laws and practice
of the member states.
2.6
The Framework Directive requires that less favourable treatment in employment or
occupation on the grounds of age must be shown to be objectively justified: if this cannot be
done, then the less favourable treatment will constitute unlawful discrimination. It provides
that “there shall be no direct or indirect discrimination whatsoever” on grounds of age. The
Directive does not specifically define ‘age,’ but its scope is not limited to discrimination
against those above a particular age. Therefore, the provisions of the Framework Directive
must be applied so that victims of age discrimination from all age groups can justify their
rights under the Directive, subject to limitations. The Directive also clarifies that in providing
minimum requirements it does not permit the reduction in existing protection for equal
treatment (non-regression) and does not invalidate any national provisions which offer a
higher level of protection for equality (Article 8).
2.7
Article 6 of the Directive provides for a range of “differences of treatment” which member
states may provide for in their legislation provided they are, within the context of national
law, “objectively and reasonably justified by a legitimate aim, including legitimate
employment policy, labour market and vocational training objectives, and if the means of
achieving that aim are appropriate and necessary.” (Article 6(1)) Such differences of
treatment may include, among others:
(a) the setting of special conditions on access to employment and vocational training,
employment and occupation, including dismissal and remuneration conditions, for young
people, older workers and persons with caring responsibilities in order to promote their
vocational integration or ensure their protection;
(b) the fixing of minimum conditions of age, professional experience or seniority in service
for access to employment or to certain advantages linked to employment;
(c) the fixing of a maximum age for recruitment which is based on the training requirements
of the post in question or the need for a reasonable period of employment before
retirement.
2.8
As well as the general exemption allowing objective justification contained in Article 6(1),
there are also certain specific exemptions contained in the Framework Directive. Specific
exclusions for the age ground:
(a) The Directive is “without prejudice to national provisions laying down retirement ages”
(Recital 14)
(b) Member states may opt not to apply the Directive to all or part of their armed forces as
concerns the age and disability grounds, to safeguard combat effectiveness (Article 3.4,
Recital 19)
(c) Member states may optionally allow occupational security schemes to fix ages for
admission or entitlement to retirement or invalidity benefits (including fixing different
ages for employees or groups of employees), or to use age criteria in actuarial calculations
in such schemes, provided that this does not result in sex discrimination. (Article 6.2).
2.9
There are also general exclusions, including:
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(a) Positive action (Article 7.1) (Recital 26 notes that this would include organisations of
persons from any of the four protected grounds, whose main object was to promote their
special needs) Genuine and determining occupational requirements (stated to arise in very
limited circumstances, where the objective is legitimate and the requirement is
proportionate) (Article 4.1, Recital 23)
(b) Measures laid down by law which, in a democratic society, are necessary for public
security, maintenance of public order, crime prevention, health protection or protection of
others’ rights or freedoms (Article 2.5)
(c) Not competent and available: The Directive “does not require the recruitment, promotion,
maintenance in employment, or training of an individual who is not competent, capable
and available to perform the essential functions of the post concerned, or to undergo the
relevant training” (Recital 17)
(d) In particular, armed forces, police, prison and emergency services are not required to
recruit, or maintain in employment, persons who do not have the required capacity to
carry out their range of functions, having regard to legitimate objectives of preserving
operational capacity (Recital 18)
2.10 As most (but not all) of the national legislation was brought in as a direct response to the
Framework Directive, it would seem likely that there would be similar treatment of the issue
across the EU, but this is not the case. Some member states have chosen to implement more
extensive protection then required by the Directive, while others have failed to properly
implement the protection required. There is also a lack of clarity on the issue of lawful
justification of discrimination on the grounds of age and different member states have
differing justifications as to what can be justified.
2.11 There have been a number of recent decisions at both the European and national level dealing
with age discrimination legislation. These decisions all contain important points to consider.
The use of age-based or age-linked distinctions to discriminate against individuals is common
but the Framework Directive now requires that less favourable treatment in employment or
occupation on the grounds of age must be shown to be objectively justified: if this cannot be
done, then the less favourable treatment will constitute unlawful discrimination.
2.12 There is currently a wide range of age-based differences of treatment in employment across
the EU including mandatory retirement ages and pensionable age which are very
controversial. Mandatory retirement is one of the more complicated issues under the
Framework Directive.
3
AGE DISCRIMINATION IN FRANCE: LEGISLATION AND CASE LAW
3.1
Principle of equality: The principle of equality is a key principle of French law and has been
enshrined in a range of instruments (including the Constitution of 1958). Prohibiting
discrimination is therefore not a new concept under French law – a general prohibition
existed both in the French Labour Code (the Labour Code) and the French Penal Code (the
Penal Code) before the Framework Directive was implemented in France.
3.2
There is no specific act concerning discrimination in France. The Framework Directive has
been transposed into French law by provisions in a number of different laws.
3.3
The Law of 16 November 2001 relating to the fight against discrimination introduced new
provisions into the Labour Code and the Penal Code to widen the scope of the then existing
discrimination prohibition. This law added age to the list of grounds that are included within
the discrimination prohibition.
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3.4
General discrimination prohibition under French law: The provisions in the Labour Code
which provide for a general discrimination prohibition are articles L. 1132-1 and the
following articles. Article L. 1132-1 provides that no person may be excluded from a
recruitment procedure or from access to a work placement (stage) or a period of training in a
business and no employee may be disciplined, dismissed or be subject to a discriminatory
measure, whether direct or indirect, notably in respect of remuneration, profit sharing,
granting of shares, training, redeployment, posting, qualification, classification, professional
promotion, transfer or renewal of contract on the grounds set out the article. These grounds
are: origin, sex, morals, sexual orientation, age, family situation or pregnancy, genetic
characteristics, the fact that the individual does or does not belong to a particular ethnic
group, nation or race, political opinions, trade union activities, religious beliefs, physical
appearance, name, medical condition or disability.
3.5
The Labour Code further states that the prohibition in article L. 1132-1 does not prevent a
difference in treatment as long as this is based on a necessary and material professional
requirement, it is for a legitimate purpose and the requirement is proportionate.
3.6
Protection against victimisation: The Labour Code also provides that no employee may be
disciplined, dismissed or be subject to a discriminatory measure for having stated that any
acts of discrimination (as set out in paragraph 1.4 above) have taken place or provided an
account of them. The new Law of 27 May 2008 (see paragraph 1.9 below) also provides that
no-one who has stated in good faith that a discriminatory act has taken place, or provided an
account of this may be treated less favourably as a consequence. No unfavourable decision
may taken against an individual if it is based on that individual’s submission, or refusal to
submit, to a discriminatory measure.
3.7
Any decisions or measures taken by employers that are considered to be discriminatory will
be held by the courts to be void.
3.8
Criminal offence: Discrimination may also constitute a criminal offence in France for which
penalties include fines and a term of imprisonment. The Penal Code also sets out a number of
exemptions to the criminal offence of discrimination. As far as a difference of treatment on
the grounds of age is concerned, this does not constitute the criminal offence of
discrimination if it is based on a necessary and material professional requirement, it is for a
legitimate purpose and the requirement is proportionate.
3.9
New law on discrimination: The Law of 27 May 2008 transposed into French law certain
provisions of the Directive which had not been transposed previously.
3.10 The Law of 27 May 2008 provides a specific definition of direct and indirect discrimination,
similar to the one contained in the Framework Directive. This definition covers all types of
discrimination, including age discrimination.

Direct discrimination is defined as the situation whereby an individual is treated less
favourably than another is, has been or will be treated in a comparable situation on the
basis of any of the discriminatory grounds.

Indirect discrimination is defined as a measure, criteria or practice which may appear
neutral but may confer, on the basis of any of the discriminatory grounds, a disadvantage
on an individual compared to another, except if this measure, criteria or practice is
objectively justified by a legitimate purpose and the means used to achieve that purpose
are necessary and appropriate.
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3.11 Less favourable treatment on the grounds of age: The Law of 27 May 2008 amended the
Labour Code to provide that a difference of treatment based on the age of an individual does
not constitute discrimination when it is objectively and reasonably justified by a legitimate
purpose, in particular where there is a need to safeguard the health and safety of workers, to
favour their professional insertion and to ensure their employment, redeployment and
financial compensation in the event of loss of employment. The means used to achieve this
legitimate purpose must be necessary and appropriate.
3.12 The Labour Code specifies that this different treatment may, in particular, consist of (i)
preventing access to employment or putting in place special conditions of work in order to
guarantee the protection of young and older workers; and (ii) fixing a maximum age for
recruitment, based on the training requirements of the post in question or the need for a
reasonable period of employment before retirement.
3.13 The Law of 27 May 2008 also extended the provisions concerning age discrimination to apply
to public servants and self-employed workers who were previously not covered by this
discrimination legislation.
3.14 Pensions specific provisions: There are no pensions specific provisions in the French age
discrimination legislation.
3.15 Mandatory retirement age: The provisions of French law concerning the age at which an
employer can require an employee to take retirement have recently changed. Prior to the Law
of 17 December 2008 on the financing of social security for 2009, except in certain very
limited circumstances provided by law where employers may require their employees to take
retirement between the age of 60 and 65 (in the process of being phased out), an employer
could require its employees to take retirement at the age of 65. The Law on the financing of
social security for 2009 pushes the age at which employers may require their employees to
take retirement to the age of 70. It is still possible for an employer to require an employee to
retire between the ages of 65 and 70 but it must follow a specific procedure whereby it
requires the consent of the employee. Employees may therefore choose to continue working
until the age of 70.
3.16 Following the ruling of the ECJ in Heyday (see “Age Discrimination in the United Kingdom:
Legislation and Case Law” below), it is unlikely that a challenge to the French law
concerning the mandatory retirement age would be successful as long as France can
demonstrate that there is a legitimate employment or social policy aim to the legislation and
that the means of achieving that aim are appropriate and necessary.
3.17 Equal treatment-related claims brought before the French labour courts mainly concern
discrimination in the field of remuneration and discrimination based on employee
involvement in union activities. Age discrimination claims are relatively rare and are usually
used as an additional claim in order to increase the alleged loss suffered by the employee.
3.18 However, public awareness of discrimination issues in France is increasing and this may
bring changes to practices in the future. Case law may develop in this respect as a result, and
there may be a risk that practices which, up until now, have not caused a problem may be
challenged before the courts in the future. For example, collective bargaining agreements
frequently provide for long service awards, and both the legal minimum dismissal indemnity
and dismissal indemnities provided for by collective bargaining agreements also increase in
accordance with length of service. Dismissal indemnities provided for by collective
bargaining agreements also often provide for an increased amount for older employees (e.g.
over the age of 50). Although these types of awards and indemnities have never caused a
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problem under French law, and have never, to our knowledge, been held to be discriminatory
by the courts, they may be challenged in the future.
3.19 Case law concerning age discrimination
Recruitment: The Tribunal de Grande Instance of Lyon (followed in a similar case by the TGI
of Bordeaux) ruled that an announcement requiring an employment candidate to be a certain
age was discriminatory. The case was brought by members of an association for the
unemployed.
Mandatory retirement: In a decision concerning an employer who required an employee to
take retirement, the employee in question was required to take retirement before reaching the
age of 65. It is possible in France to require an employee to take retirement before the age of
65 in specific circumstances if the employee in question has already worked the requisite
number of quarters to be entitled to receive a full state pension and a collective agreement
provides for this possibility (and several other conditions are met). If all the conditions are
not met, the employee will not be considered as having been required to take retirement,
rather as having been dismissed by the employer. In the case in question, an employee was
required to take retirement, but had not worked the requisite number of quarters to receive a
full state pension. The Labour Division of the French Supreme Court therefore decided that
he had in fact been dismissed by the employer. In addition, the court held that the
employment had been terminated solely because of the employee’s age, and was therefore
discriminatory. As a result, the dismissal was held to be void.
Difference of treatment on grounds of age: In a recent decision, the Court of Appeal of Paris
held that the provisions of a social plan that granted a dismissal indemnity of a lower amount
to employees over the age of 57 was not discriminatory. The employer justified the
difference of treatment on the grounds that employees over the age of 57 who are dismissed
from employment are (subject to certain conditions) entitled to continue to receive
unemployment benefits until they receive a full state pension. In addition, it considered that
providing the same amount of dismissal indemnity to this group of employees would put them
in a financial situation which would not necessarily have encouraged them to accept
redeployment opportunities. The measures were therefore justified in an attempt to maintain
staff in employment and provide balanced treatment to employees who would not find
themselves in the same situation on termination of employment. The Court of Appeal
accepted this justification and ruled that the measures in the plan were not discriminatory.
4
AGE DISCRIMINATION IN GERMANY: LEGISLATION AND CASE LAW
4.1
Germany transposed the age provisions of the Framework Directive on 14 August 2006. The
General Equal Treatment Act (“Allgemeines Gleichbehandlungsgesetz”) (AGG) went into
effect in Germany on 18 August 2006.
4.2
The AGG outlaws discrimination on the grounds of:
(a)
race;
(b)
gender;
(c)
religion;
(d)
disability;
(e)
age;
(f)
sexual identity.
4.3
The AGG offers protection against both, direct or indirect discrimination and establishes an
appeal process for employees who are subjects of discrimination. Reverse age discrimination
is outlawed as well in Germany. Under the AGG, the concept of discrimination is:
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(a)
Direct Discrimination where one person is treated less favorably than another has
been or would be treated in a comparable situation on grounds of age.
(b)
Indirect Discrimination where one apparently neutral provision, criterion or practice
would put persons of a certain age at a particular disadvantage compared with other persons,
unless it is objectively justified by a legitimate aim and the means of achieving that aim are
appropriate and necessary.
(c)
Harassment where any conduct related to any of the grounds of discrimination
occurring with the purpose or effect of violating the dignity of a person and of creating an
intimidating, hostile, degrading, humiliating, or offensive environment.
4.4
Under the AGG, as a general rule, it is prohibited for employees to suffer disadvantages
based on any of the characteristics mentioned in the AGG. However, not every case of
different treatment qualifies as an inadmissible discrimination. The law provides for certain
exemptions: in general, the Act permits differential treatment based on job requirements, if
(a)
the reason for the different treatment is a material and decisive job requirement owing
to the type of job to be done or to the conditions of its performance, and
(b)
the purpose of the job is lawful and the requirement is reasonable.
The requirement imposed on the employee must be necessary and must satisfy the test of
proportionality when the purpose of the job is weighed against the required protection against
discrimination.
4.5
In November 2005, in a post -Employment Framework Directive case and before Germany
transposed the provisions of the Framework Directive in the matter Werner Mangold v.
Rüdiger Helm, Case C-144/04 the ECJ held that the German legislation regarding fixedterm contracts was not in line with European law and therefore must not be applied. The
decision was based on the general principles of European law as the directive had not yet
been transposed into German law.
4.6
The matter Werner Mangold v. Rüdiger Helm concerned a German national law that
authorised, without restriction, except in specific cases of continuous employment
relationship, the conclusion of fixed term contracts of employment once the employee
reached the age of 52. The ECJ was asked whether such a provision could be justified
objectively under Article 6. The ECJ recognised that the purpose of the legislation was to
promote the integration into the working life of unemployed older workers who encounter
considerable difficulties in finding work. It was held that, as a rule, an aim of that kind
“objectively and reasonably” justified a difference of treatment on grounds of age. However
the ECJ ruled that the provision, in reducing the employment protection available to the older
worker, went beyond what was appropriate and necessary to attain the legitimate objective
pursued and therefore could not be justified under Article 6 of the Framework Directive.
4.7
Following the ECJ judgment in Mangold v. Helm, Germany reviewed its national legislation
and in April 2007 made a new proposal in the framework of the “Initiative 50plus package”
which allows employer to hire workers age 52 and up under fixed-term contracts for up to
five years. The Law to Improve Employment Opportunities for Older People (Gesetz zur
Verbesserung der Beschäftigungschancen ältererer Menschen) is a central component of the
“Initiative 50plus package”. The Initiative 50plus package backs up the German law adjusting
the
age
limits
for
statutory
pension
schemes
(RentenversicherungsAltersgrenzenanpassungsgesetz) which raises the statutory age of retirement in stages to 67
years until 2012.
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4.8
Case law concerning age discrimination:
4.9
Following the adoption of the AGG, a group of three pilots filed a claim against Lufthansa,
the German airliner as they felt discriminated against by the upper age limit set at 60 years
old by the collective bargaining agreement despite the fact that the general age limit for old
age pension was 65. On 15 October 2007, the Labour Court of the State of Hesse decided that
the age limit imposed by Lufthansa was justified by a legitimate purpose, i.e. the safety of air
traffic and passengers. (Hessisches Landesarbeitsgericht 17. Kammer, Arbeitsgericht
Frankfurt, Urteil vom 14.03.2007, Az. 6 Ca 7405/06. The case is currently pending before the
Federal Labour Court in Erfurt.
4.10 The matter Birgit Bartsch v. Bosch und Siemens Hausgeräte (BSH) Altersfürsorge GmbH, C
-427/06 dealt with the issue of whether an age-gap provision in a German occupational
pension scheme contravened European Community principles on age –equality and in
particular the Framework Directive. Mrs Bartsch was the widow of Mr Bartsch who was
twenty-one years her senior. Mr Bartsch had been employed with BSH at the time of his
death in 2004. On his death, Mrs Bartsch applied for a widow’s pension. Her application
was unsuccessful on the basis of an age-gap clause which stipulated that payments would not
be made if the widow was more than fifteen years younger than the former employee. Mrs
Bartsch subsequently claimed a breach of the principles of equal treatment, contrary to
Article 13 TEC and Directive 2000/78 establishing a general framework for equal treatment
in employment and occupation. BSH argued that the provision in question was justified by
the need to limit and quantify risks assumed by voluntary pension schemes. It argued Article
13 TEC is an empowering measure and is not directly effective. At the time of the
proceedings, the deadline for implementation of the Directive had not yet passed and it had
not yet been implemented in Germany. In this context, the German Federal Labour Court
asks the ECJ about the extent to which the Mangold judgment can be applied to this case and
whether Community law contains a general principle prohibiting age discrimination which
applies even in cases where the alleged discriminatory treatment is unrelated to Community
law. The Court was asked whether these principles have horizontal application between
private parties and whether the present situation falls within the scope of Community law.
4.11 The Court found itself in agreement with the earlier opinion of Advocate General Sharpston
and compared the present case to that of Mangold which had regarded the principle of nondiscrimination on grounds of age as a general principle of Community law. The Court found
that the general principles of equality do operate in certain circumstances to prohibit age
discrimination but that there was not a general Community rule prohibiting it. Such general
principles operate only through the application of other Community laws. Given that Article
13 TEC is not directly effective and Directive 2000/78 had not reached the end of its
transposition period in the present case, the Court did not consider there to be a specific
substantive rule of Community law that provided for the application of the equality principle
to this case. During a Directive’s transposition period, member states are prevented from
adopting measures that are incompatible with the Directive but the age-gap clause did not
relate to the transposition of Community law nor was it adopted during the Directive’s
transposition period. Since the situation at hand did not fall within the scope of Community
law, the Court could not apply the general principle of equality.
4.12 Age discrimination – Mandatory retirement
4.13 In Colin Wolf v. Stadt Frankfurt am Main, C-229/08 a reference was lodged with the ECJ on
28 May 2008 and the issue whether an age limit for the recruitment of officials.
4.14 The German national court asks a number of detailed questions of the Court, seeking an
interpretation of Directive 2000/78 establishing a general framework for equal treatment in
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employment and occupation. In particular it seeks a ruling on whether the setting of a
maximum age for the recruitment of employees is permissible. The German court goes on to
ask whether it is a legitimate aim to seek to engage officials who will be in service for as long
as possible and whether such age limits could be linked to various aspects of pension
entitlement.
4.15 In the case of Kücükdeveci v Swedex Gmbh & Co, C-555/07, the ECJ has been asked to rule
on a national statutory provision that regulates notice periods for employees age 25 or
younger. The court has to decide whether this law can be justified on the grounds that
employers have ‘a commercial interest in flexibility regarding staffing’ and that younger
people are recognised to have less protection in terms of notice periods than older people
because due to ‘their age and/or their lesser social’ family and private obligations’ they are
assumed to be more flexible and mobile than older workers. This case therefore addresses
whether stereotypical assumptions about a particular age group can be used to justify
discrimination; the assumption here being that younger people have fewer personal
responsibilities’ and it can therefore be justified to offer them less employment protection.
5
AGE DISCRIMINATION IN THE NETHERLANDS: LEGISLATION AND CASE LAW
5.1
By Law of 17 December 2003 - and with an effective date of 1 May 2004 - the Directive
2000/78/EG was implemented in the Netherlands. In addition to already existing legal
provisions on equal treatment based upon (for instance) gender, race, political affinity,
persons religion or beliefs, health and sexuality, age was introduced as a new discrimination
ground. The law therefore aims at the prevention of age being used as a direct or indirect
distinction in employment and occupation.
5.2
The Law of 17 December 2003 prohibits direct and indirect discrimination as well as
intimidation based upon age in relation to the offering, entering and ending of an employment
agreement as well as age-difference in benefits, schooling opportunities and labour
conditions.
(a)
(b)
(c)
Direct discrimination is defined as the situation whereby an individual is treated
differently in a comparable situation on the basis of age.
Indirect discrimination is defined as a measure, criteria or practice on other grounds
which may appear age-neutral but may have as an effect distinction based upon age.
Intimidation is behaviour in relation to age which is aiming at the creation of a
threatening, humiliating, offending or hurting environment.
Both direct and indirect discrimination can be objectively justified if a legitimate purpose is
to be obtained and the means used to achieve that purpose are necessary and appropriate and
no reasonable alternative is available. Intimidation can never be justified.
5.3
The Law itself includes a few examples of age-distinction which are always justified:
(a)
(b)
(c)
Distinction based upon law or legislation The Law states that a difference of
treatment based upon age is allowed if the distinction is based upon legal regulations
aiming at an increased labour force participation.
Reaching the age upon which one is entitled to receive State Old Age benefits (AOW)
The Law states that the automatic termination of an employment contract is allowed
based upon the fact that the employee reaches the age of 65 (currently the age one
becomes entitled to receive AOW-benefits).
Age of admission as a participant in a pension scheme The Law states that it is
allowed to have a minimum-age of admission in a pension scheme (the Pensions Act
states it should be 21 as a maximum).
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(d)
(e)
(f)
6
Retirement Date The Law states that it is allowed to include a retirement date in a
pension scheme, but if that retirement date is below the AOW-age the fact that one
may be able to retire does not implicate one can be forced to terminate its
employment.
Actuarial Assumptions The Law states that differences resulting from actuarial
calculations which include age-related elements are allowed. In the Netherlands this
means that there has been quite a lot of case law regarding defined contribution
schemes which include age-related premiums.
Objectively justified The Law states that a difference of treatment based upon age is
allowed if the distinction is necessary and appropriate to obtain a legitimate purpose
and no other reasonable alternative is available.
5.4
Decisions or measures taken by employers that are considered to be discriminatory and not in
compliance with the Law of 13 December 2003 will be voidable (if they are resulting in a
dismissal) or void.
5.5
In the Netherlands the rulings of the ECJ are closely followed to see if the Dutch options of
distinction upon age which are as exceptions included in the Law, are still justifiable. Until
now there has not been any need to amend the Dutch Law on age discrimination.
5.6
Equal treatment-related claims can be filed with the Dutch Commission on Equal Treatment
(which by law has been appointed as the committee to research if any discriminatory non
justifiable distinction based on age has been made) or with the Dutch district court (with the
option of higher appeal). Any judgement of the Commission has no power of execution.
5.7
The Dutch Commission on Equal Treatment and the Dutch district court have had to rule in
quite a few cases related to DC-schemes including age-related premiums. These schemes are
allowed, but only if the difference in premiums is a result of actuarial assumptions.
5.8
Another form of distinction that has been subject of litigation in the Netherlands is any form
of ‘forced’ retirement. All filed complaints about mandatory retirement on or after the age of
65 have been rejected. A claim regarding mandatory retirement by airline pilots at age 56
being discriminatory was also rejected, while this form of mandatory retirement was judged
as being justifiable. The mandatory retirement was concluded by social partners, part of the
CLA and aiming at the employment and promotion of younger pilots.
AGE DISCRIMINATION IN THE UNITED KINGDOM: LEGISLATION AND CASE
LAW
6.1
The Framework Directive was enacted in the UK by regulations applying to Great Britain the Employment Equality (Age) Regulations 2006 (“Age Regulations”) and by separate but
similar regulations which apply to Northern Ireland. For simplicity, this paper confines itself
to a discussion of the Age Regulations. These generally came into effect from 1 October
2006, but uncertainty over their application led to the implementation of their specific
pensions provisions being postponed until 1 December 2006 in order to allow time for further
industry consultation. The Age Regulations were amended very shortly afterwards by the
Employment Equality (Age) (Amendment no.2) Regulations 2006. They do not apply to State
pensions.
6.2
Following the provisions of the Framework Directive itself, the Age Regulations outlaw
direct and indirect age discrimination (except where this can be objectively justified), and
prohibit harassment and victimisation on age grounds. In order to mount a valid age
discrimination claim, a person must be able to show that he has been treated worse than
someone else in identical or very similar circumstances. The Age Regulations also introduce
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a default retirement age of 65, and require employers to consider (although only to consider)
an employee’s request to consider working after the date he or she is due to retire.
6.3
Pensions specific provisions are contained in Schedule 2 of the Age Regulations. (Part 2 of
Schedule 2 deals with exempted rules, practices, actions and decisions in relation to
occupational schemes and Part 3 in relation to personal pension schemes). Every pension
scheme is treated as including a non-discrimination rule which overrides other provisions of
the scheme. The result is that if discriminatory scheme provisions or practices are not altered
benefits will have to be levelled up (with associated cost implications) until any change is
made. The new requirement relates only to service after 1 December 2006, except where
benefits are not service related and can therefore be equalised immediately (the most obvious
example being a typical life assurance benefit expressed as a multiple of pay). The Age
Regulations relax normal consultation and amendment requirements where changes to
schemes are needed to enable them to comply, and include a statutory amendment power.
6.4
Many common provisions in UK schemes are specifically exempted by the Age Regulations
as amended. The specific exemptions are listed below. Most are self-explanatory.
(a)
(b)
(c)
(d)
(e)
(f)
(g)
Waiting periods are generally exempt if for 5 years or less, but require to be justified
by business needs if longer.
Schemes can restrict admission by reference to minimum or maximum ages or to a
minimum level of pensionable pay.
The use of age criteria in actuarial calculations is permitted. This includes actuarial
factors used, for example, to determine early and late retirement, and commutation.
Fixed factors may not fall within the exemption.
Arguably the most important exemptions are those relating to DC contributions,
where benefit designs often incorporate different contribution levels for workers of
different ages or length of service. There is a specific exemption for such
contributions which differ on age grounds, if the purpose is to equalise or ‘make more
nearly equal’ the amount of resulting benefit. Similarly, where the same rate of
contributions is paid by and in respect of members of all ages an exemption also
applies.
Schemes can continue to set a normal retirement date and to allow for early
retirement, as long as benefits are actuarially reduced for early payment. Many
schemes of course, particularly privatised industry schemes, provide enhanced
benefits on early retirement, and there is a separate exemption which allows these to
continue in relation to active or prospective members of a relevant scheme at 1
December 2006. Schemes can also allow for late retirement and continue the practice
of actuarial increases. However, questions remain about the provision of continued
accrual after normal pension age, which appears discriminatory but which is
commonly resisted by employers. The fear of challenge and the wish to cap pension
cost has led many employers to refuse applications by employees to continued
working after normal pension age.
Redundancy and ill-health pensions are exempt (both of which are normally enhanced
if provided).
There are a host of other exemptions. Some merely confirm what would seem
obvious e.g. that members with different lengths of pensionable service and
pensionable pay will receive different benefits. Others deal with specific provisions
relating to State pensions, such as the exemption for bridging pensions. The most
significant exemptions are those which confirm that it is lawful to close schemes to
new entrants or future accrual, notwithstanding that the pension security of younger
workers is affected as a result.
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6.5
It will be apparent that the Age Regulations are in some respects very detailed and in others
less so. It is perhaps not surprising that there have already been a number of legal challenges
with regard to key aspects of the Age Regulations. Some of these are linked, but broadly all
fall or are likely to fall within one or more of the following:
(a)
(b)
(c)
(d)
(e)
the meaning of direct and indirect discrimination (see 6.6 below);
the objective justification defence (see 6.7 below);
the legitimacy or otherwise of the default retirement age at 65 (see 6.8 below);
whether or not the Age Regulations go further than the Framework Directive see 6.8
below); and
the breath and/or legitimacy of specific exemptions under the Age Regulations for
pension schemes.
6.6
In Rainbow v Milton Keynes Council, an employment tribunal decided that a school’s
decision to recruit a less experienced teacher in order to save salary costs was indirect
discrimination that could not be justified. There was no evidence that the school could not
afford to employ someone with more experience, nor that other options had been considered,
or that the question of cost had been balanced against the discriminatory effect.
6.7
For an employer to defend a practice which is directly or indirectly discriminatory, he must
be able to show that it can be objectively justified i.e. that “the treatment or, as the case may
be, provision, criterion or practice to be a proportionate means of achieving a legitimate
aim”. Although the defence must be made by the employer, it is generally accepted that
pension trustees can rely on the employer’s justification. Guidance to the Age Regulations
has been published by the DTI (now renamed the Department for Business Enterprise and
Regulatory Reform or BERR)). The legitimacy of the employer’s objectives, and the
proportionality of the means of achieving those objectives are therefore key concepts. The
guidance says that a ‘legitimate aim’ can include
(a)
(b)
(c)
(d)
6.8
business needs;
efficiency;
reducing staff turnover;
providing promotion opportunities to retain good workers or employees.
Cost saving of itself is probably not a legitimate aim, although it may be relevant with regard
to proportionality, see Cross v British Airways [2005] IRLR423.
When considering whether or not the proportionality requirement has been satisfied, the DTI
guidance goes on to suggest:
(a)
(b)
(c)
6.9
that the offending provision must actually contribute to the pursuit of the legitimate
aim;
that the importance of the legitimate aim that is being pursued should be weighed up
against its discriminatory effects;
a measure is not proportionate if there is an alternative that achieves the same aim
effectively but which would be less discriminatory.
In Rolls Royce PLC v Unite the High Court confirmed that length of service, used as a
criterion within a selection matrix for redundancy contained within collective agreements was
a ‘proportionate means of achieving a legitimate aim’ within Reg 3(1) of the Age
Regulations. Service related selection criteria could, in any event, be classified as a ‘benefit’
under Regulation 32(1) and thus be capable of fulfilling a business need of [the Claimant’s]
undertaking within Regulation 32(2). However, ‘last in first out’ may not be justifiable if
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used on its own. The acceptance that generous redundancy terms for older workers, while
directly discriminatory, were capable of being justified was restated in ICI v McCullough.
The reasons given were to encourage and reward loyalty and to give support to older workers
who might be more vulnerable in the job market. However, an appeal was allowed and the
case sent back to the industrial tribunal for further consideration, because there had been no
proper attempt to determine whether the company’s reasonable needs outweighed the
discrimination, nor whether the means were proportionate.
6.10 Unison v The First Secretary of State was the first case to consider UK age discrimination
law. The case arise from a government decision to abolish the ‘rule of 85’ in the Local
Government Pension Scheme, using age discrimination as the rationale. The rule of 85
allowed early retirement pensions to be paid without reduction on early retirement where age
and service together amounted to 85 years. Many other public sector schemes, and some
private sector schemes also operated these so-called ‘magic number’ rules. They are
extremely costly. Unison, the trade union, applied for judicial review of the governments
decision, on the basis that either the provision was not within the scope of the Directive or
that it could be objectively justified. The High Court held that Article 6(2) of the Directive,
which exempts certain practices, did not apply. The exemption (implemented in the Age
Regulations) had to be interpreted narrowly. The rule of 85 formula did not apply exclusively
to the member’s age. In any event, the court concluded that the government was acting
reasonably in concluding that the rule of 85 could not be objectively justified. It did not
reward loyalty, since the rule worked to the equal benefit of a member who remained in
service and one who left employment prior to retirement.
6.11 Bloxham v Freshfields concerned changes to partners’ pension arrangements for its partners.
Mr Bloxham alleged that the changes designed to facilitate the earlier retirement of partners
were age discriminatory. They had led to him retiring earlier than he wanted with a 20%
reduction in his pension. The Tribunal found that the changes could be objectively justified.
Removing or mitigating intergenerational unfairness between partners was a legitimate aim,
and the changes were proportionate.
6.12 In the Heyday case (Case C-388/07): Incorporated Trustees of the National Council on
Ageing (Age Concern England – formerly Heyday) v Secretary of State for Business
Enterprise and Regulatory Reform Age Concern challenged a number of aspects of the Age
Regulations including:
(a)
(b)
the objective justification defence
the default retirement age of 65 introduced by the Age Regulations
6.13 The Advocate General opined on the limited questions put to the Court by the UK High
Court, which had referred the matter on 24 July 2007. There were three main questions:
(a)
(b)
(c)
Does the scope of the Directive extend to national rules which permit employers to
dismiss employees aged 65 or older by reason of retirement?
Does Article 6(1) require Member States to define the kinds of differences of
treatment which may be objectively justified by a list or other measure similar in form
and content to Article 6(1)?
Where there any significant difference between the application of the objective
justification test where there was direct or indirect discrimination?
6.14 The Advocate General’s opinion was:
(a)
Following Palacios (see below) national retirement rules were within the scope of the
Directive;
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(b)
(c)
There was no need to have an exhaustive list: consequently the generalised approach
found in Regulation 3 of the Age Regulations was compatible with the Directive;
There was no difference in the objective justification test as applied to direct and
indirect discrimination.
6.15 The ECJ ruled on 5 March 2009 and, as expected, followed the Advocate General’s opinion.
Differences in treatment on the grounds of age were not unlawful if they were designed to
achieve ‘legitimate employment policy, labour market and vocational training objectives’. It
was for national courts to determine whether a particular provision was lawful or not. The
ECJ declined to accept arguments based on the differences between the Age Regulations and
the Framework Directive.
6.16 Consequently there is still no final ruling on whether or not it is unlawful to maintain a
default retirement age of 65, and Age Concern will have a second bite of the cherry in trying
to demonstrate to a UK court that a mandatory retirement age is unfair, or that age 65 is
unfair. Age Concern is likely to argue that State and private provision is inadequate and the
UK government to argue that rising unemployment levels are causing a glut of workers in the
labour market. It is likely that there will be further challenges. Under current economic
conditions, and at a time when pension benefits are being reduced, protection against
dismissal on age grounds is likely to become a right worth fighting for. At the same time,
employers will be temped to cut older workers in order to have work done often more cheaply
by younger employees.
6.17 The question of the applicability of the Directive to national law put to the ECJ in the Heyday
case was similar to a Spanish case entitled Palacios de la Villa v Cortefiel Servicios SA.
Spanish law rendered lawful clauses in collective agreements that provide for the termination
of employment contracts where workers had reached the age of 65, subject to the proviso that
certain pension conditions were satisfied. The Claimant alleged that this contravened the
Directive. The Spanish Government’s first contention was that the legislation was exempt as
a result of recital 14 in the Directive’s preamble, which provides that;” This Directive shall be
without prejudice to national provisions laying down retirement ages”.
6.18 The ECJ in Palacios de la Villa, drew a distinction between Member States being allowed to
set retirement ages, which was clearly permitted by the Directive, and setting conditions
which resulted in the termination of employment, as in the Spanish case. In holding that the
provision in the collective agreements was directly discriminatory on the grounds of age, the
ECJ went on to consider whether the measures were justified - It held that the aim of the
legislation, to regulate the labour markets, could not ‘reasonably be called into question’. It
also stated that the legislation was appropriate and necessary to achieve this aim. In doing so,
emphasis was placed on the margin of discretion granted to Member States. The relevant
provisions were therefore not in breach of the Directive.
6.19 Johns v Solent SD Limited addressed the issue of whether age discrimination claims should
be allowed a stay in proceedings, pending the result of Heyday. The EAT, overturning the
Tribunal, ruled that a stay should be granted. Following this decision, the President of the
Employment Tribunals has ordered for all claims brought by employees forced to retire at 65
to be ‘stayed’ until Heyday has been heard.
6.20 Age discrimination is a new concept in UK law, and prior to the Age Regulations, any legal
challenge to such discrimination would have had to be mounted indirectly e.g. on sex
discrimination or equal pay grounds. The new legislation remains controversial. While the
Heyday case (referred to at 2.12 and 6.8 above) demonstrates a determined challenge to the
concept of a mandatory default retirement age, there has been much comment from business
and more generally about the desirability of a system which allows room to be made for
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younger workers, especially when jobs are scarce. The government is expected to publish a
new Equality Bill in April 2009, designed to clarify and augment current discrimination law.
It is likely that the Bill will provide the focus for continued debate and lobbying. While
business is expected to oppose more flexible retirement, calls have already been made for the
Bill to remove the default age, arguing that older employees will need to work longer to
recoup losses caused by falling stock markets. The use of defined benefit schemes to provide
early retirement enhancements in order to soften the impact of redundancy on older workers
was widespread in earlier economic recessions. The lenient application of incapacity criteria
was also a common feature. Although the cost impact was sometimes underestimated and, in
group schemes at least, not always controlled, there was at least the opportunity to spread the
cost of retiring workers early. The decline of defined benefits schemes means that these
opportunities for encouraging retirement are much reduced. Many employees are not in
occupational schemes at all, and the move to DC schemes has often been combined with a
reduction in overall contribution levels. The result is likely to increase the pressure on
government to allow more flexible patterns of work.
6.21 There are also likely to be challenges in relation to at least some of the specific exemptions.
The issue of benefits to be provided for employees remaining in service after normal pension
age is an obvious problem area, but one likely to be solved as more and more schemes close
to accrual for all members. There will almost certainly be challenge in relation to age-related
DC contributions.
7
1
2
3
AGE DISCRIMINATION IN THE UNITED STATES: LEGISLATION AND CASE LAW
7.1
The Employee Retirement Income Security Act of 1974, as amended (“ERISA”) does not
preempt federal anti-discrimination statutes, such as the Age Discrimination in Employment
Act (ADEA). State age discrimination laws are preempted by ERISA if the state law “relates
to” a benefit plan covered by ERISA, unless the state law prohibits conduct also prohibited by
the ADEA.
7.2
Section 514(a) of ERISA preempts “any and all State laws insofar as they may now or
hereafter relate to any employee benefit plan” covered by ERISA. 1 In Shaw v. Delta Air
Lines, Inc.2, the U.S. Supreme Court set forth a two-step process for analyzing ERISA
preemption. First, a court must determine whether the state law at issue “relate[s] to”
employee benefit plans within the meaning of Section 514(a). And if a state law relates to
such a plan, the second step is to determine whether any exception in ERISA saves the state
law from preemption. The potentially relevant exception is Section 514(d), which provides:
“Nothing in this subchapter shall be construed to alter, amend, modify, invalidate, impair, or
supersede any law of the United States . . . or any rule or regulation issued under any such
law.”3
7.3
In Shaw v. Delta Air Lines, Inc., the Court held that ERISA Section 514 preemption would
impair the joint state/federal enforcement scheme of Title VII. The Court went on to say that,
“insofar as state laws prohibit employment practices that are lawful under Title
VII,...preemption would not impair Title VII within the meaning of [ERISA] Sec. 514(d).”
The preemption exception under Section 514(d) has therefore been found to apply where
conduct is prohibited by both the ADEA and the state law.
29 U.S.C. § 1144(a).
Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983).
29 U.S.C. § 1144(d).
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4
5
6
7
8
9
7.4
For example, in Devlin v. Transportation Communication International Union4, retired
employees challenged an amendment to a welfare-benefit plan which required them to pay
$100 per month to maintain medical benefits while active employees were provided with free
medical benefits. The Second Circuit held that “no portion of the [State] Human Rights Law
– as it relates to appellant’s age discrimination claims – will be pre-empted by ERISA”
because its protections track those of the ADEA.5
7.5
In contrast, the State law is preempted by ERISA where the ADEA and the state law conflict
(i.e., where the state law prohibits conduct permitted by the ADEA or the ADEA prohibits
conduct permitted by the state law ).6
7.6
The primary goal of ERISA was not to prohibit age discrimination; instead, ERISA was
designed to protect the general promise of employee benefits. However, ERISA does protect
the right of employees who work past the normal retirement age to continue to participate in
certain benefit plans. For example, an employee who works past the normal retirement age
will continue to accrue benefits in a defined benefit plan, or receive contributions under a
defined contribution plan. ERISA also prohibits a plan from ceasing benefit accruals solely
on the basis of age.
7.7
The Age Discrimination in Employment Act (ADEA) was designed to protect older
employees against employment discrimination based on age. The ADEA generally prohibits
age discrimination in employment. Specifically, Section 4(a) of the ADEA provides that it
shall be unlawful for an employer:“(1) to fail or refuse to hire or to discharge any individual
or otherwise discriminate against any individual with respect to his compensation, terms,
conditions, or privileges of employment, because of such individual’s age; (2) to limit,
segregate, or classify his employees in any way which would deprive or tend to deprive any
individual of employment opportunities or otherwise adversely affect his status as an
employee, because of such individual’s age; or (3) to reduce the wage rate of any employee in
order to comply with this chapter.” 7 The Older Workers Benefit Protection Act (OWBPA)
amended the ADEA and made it very clear that the ADEA applies to employee benefit plans
(except in limited circumstances). The U.S. Supreme Court has noted that the ADEA, which
was originally designed to mirror Title VII of the Civil Rights Act of 1964, as amended, and
Title VII are largely to be interpreted in the same manner.8 There are generally two theories
of age discrimination: (1) disparate treatment theory, and (2) disparate impact theory.
7.8
Claims of disparate treatment involve employment practices that facially treat members of a
certain group less favourably than members of another group, and the disparate treatment
stems from a discriminatory intent. An employment policy that facially discriminates based
on age suffices to show disparate treatment under the ADEA.”9 The U.S. Supreme Court has
Devlin v. Transportation Communication International Union, 173 F.3d 94 (2d Cir. 1999).
Id. at 100-01. See Barber-Colman Co. v. Barbosa, 940 F. Supp. 1269, 1273 (N.D. Ill. 1996) (“Combs’ claim before the HRC
[Illinois Human Rights Commission] is that he was discriminated against based on his age when Barber-Colman refused to give him
severance pay but gave it to other similarly situated discharged employees. Such conduct, if proven, would violate section 623(a)(1)
[of the ADEA]. Consequently, applying Shaw, Section 514(d) excepts from pre-emption Combs’ claim under section 2-102(A) of
the [Illinois Human Rights] Act.”).
See Hurlic v. S. Cal. Gas Co., --F.3d --, No. 06-55599, 2008 WL 3852685, at *12 (9th Cir. Aug. 20, 2008) (“Because FEHA
prohibits practices which would be lawful under the ADEA, Plaintiffs’ FEHA claim is preempted.”) (citing § 514(a) of ERISA and
Shaw); Alston, 962 F. Supp. at 625 (“An age discrimination suit brought under a state statute, such as NJLAD [New Jersey Law
Against Discrimination], which has a longer period of limitation than its federal counterpart and does not require any state
meditative process, does not further the goals of the ADEA so as to escape ERISA pre-emption.”); Brayley v. Doehler-Jarvis
Castings Div. of NL Indus., 637 N.Y.S.2d 909, 912 (4th Dep’t 1996) (affirming ERISA pre-emption of state law discrimination
claim where former employees failed to state claim under ADEA).
29 U. S. C. §623(a).
Smith v. City of Jackson, 544 U.S. 228 (2005).
Kentucky Retirement Systems v. EEOC, 128 S. Ct. 2361 (2008).
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addressed the meaning of the phrase “based on age” in Hazen Paper Co. v. Biggins and
Kentucky Retirement Systems v. EEOC.
7.9
In Hazen Paper Co. v. Biggins10 the plaintiff was fired at age 62 just weeks before his
pension was to vest.11 The question addressed by the U.S. Supreme Court was “whether an
employer violates the ADEA by acting on the basis of a factor, such as an employee’s
pension status or seniority, that is empirically correlated with age.” The Court noted that
when an employer’s decision to terminate an employee is based on factors other than age,
then the problems that the ADEA was designed to prevent disappear, even if the motivating
factor is correlated with age. The Court held that a decision to fire someone based on pension
or compensation concerns is not discriminatory treatment on the basis of age and is thus not a
violation of the ADEA.12
7.10 Kentucky Retirement Systems v. EEOC.13 In the recent case of Kentucky Retirement
Systems v. EEOC, the U.S. Supreme Court reiterated its holding in Hazen Paper Co. v.
Biggins. In the case, Kentucky offered employees working in hazardous positions “Normal
Retirement Benefits” after working either 20 years or 5 years and attaining age 55, and
offered “Disability Retirement Benefits” to workers meeting specified requirements. Normal
Retirement Benefits were calculated based on actual years of service; Disability Retirement
Benefits were calculated by adding to an employee’s actual years of service the number of
years that the employee would have had to continue working in order to become eligible for
normal retirement benefits. The plaintiff became eligible for retirement at age 55, but
continued to work and became disabled and retired at age 61. The plaintiff filed suit when his
pension was based on actual years of service without a supplement of additional years. The
Court reiterated its holding in Hazen Paper Co. v. Biggins, and noted that a valid disparate
treatment claim requires proof that age was the motivation for the employer’s action, and that
without evidence of intent, an action motivated by a factor related to age, is not an action
motivated by age. The Court applied the principles of Hazen and identified a “clear non-agerelated rationale” for the disparate treatment, and the Court found the circumstances
demonstrated that the disparate treatment was not “actually motivated” by age. Therefore, the
Court held the disparate treatment was not based on age and did not violate the ADEA.
7.11 Claims of disparate impact “involve employment practices that are facially neutral in their
treatment of different groups but that in fact fall more harshly on one group than another.”14
Proof of discriminatory intent is not required to establish a case of disparate impact. For
years there was a circuit split regarding whether or not a disparate impact claim was viable
under the ADEA. The U.S. Supreme Court addressed this issue, and the issue of an
affirmative defense in Smith v. City of Jackson and Meacham v. Knolls Atomic Power
Laboratory.
7.12 In Smith v. City of Jackson15 the city granted officers with five or fewer years of service with
the department larger raises than officers with more than five years of service in order to
bring the starting salaries of officers up to the regional average. A group of older officers
made a disparate impact claim under the ADEA, arguing the city unintentionally engaged in
age discrimination. The question was whether disparate impact claims were viable under the
ADEA, and the U.S. Supreme Court held that the ADEA does indeed authorize recovery in
disparate impact cases.16 However, the Court noted that the scope of a disparate impact claim
10
11
12
13
14
15
16
Hazen Paper Co. v. Biggins, 507 U.S. 604 (1993).
The vesting of the pension was based on years of service, not on age.
The court noted that such a decision, however, may be a violation of ERISA.
Kentucky Retirement Systems v. EEOC, 128 S. Ct. 2361 (2008).
Teamsters v. United States, 431 U.S. 324 (1997).
Smith v. City of Jackson, 544U.S. 228 (2005).
Prior to Smith, the circuit courts were split on whether disparate impact claims should even be allowed under the ADEA.
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under the ADEA is narrower than that under Title VII, and that the ADEA allows an
otherwise prohibited action where the discrimination was based on reasonable factors other
than age.17 The court further noted that the plaintiff has the burden of “isolating and
identifying the specific employment practices that are allegedly responsible for any observed
d that it is insufficient to merely point out that an action “is relatively less generous to older
workers than to younger workers.” The court found the older officers had failed to identify
any specific practice that had an adverse impact on older employees, and further found that
the city’s action was based on reasonable factors other than age.
7.13 In Meacham v. Knolls Atomic Power Laboratory18 the Court noted that the “reasonable
factors other than age” exemption in the ADEA provides an affirmative defense to a disparate
impact claim and further held that the employer bears both the burden of production and the
burden of persuasion when it raises the affirmative defense that the employment decision was
based on reasonable factors other than age.
7.14 ADEA Section 4(a)(3) provides that it is unlawful for an employer to “reduce the wage rate
of any employee in order to comply with this chapter.”19 This means an employer is
prohibited from reducing the employee wage rate in order to cover the costs ADEA
compliance. Thus, an employer may not reduce the wages or benefits of employees in order
to cover the costs of complying with the ADEA.
7.15 ADEA Section 4(i) prohibits an employer from reducing or ceasing benefit plan accruals or
allocations on account of the attainment of any age.
7.16 In the case of a defined benefit plan, the ADEA provides that it shall be unlawful for an
employer to permit “the cessation of an employee’s benefit accrual, or the reduction of the
rate of an employee’s benefit accrual, because of age.”20 And in the case of a defined
contribution plan, the ADEA provides that it shall be unlawful for an employer to permit “the
cessation of allocations to an employee’s account, or the reduction of the rate at which
amounts are allocated to an employee’s account, because of age.”21 However, in the cases of
both a defined benefit plan and a defined contribution plan, an employer may permit the
cessation of an employee’s benefit/allocation accrual in the event that the employee has
attained the maximum years of accrual.
7.17 The application of ADEA Section 4(i) to cash balance plans is more complicated. Prior to the
enactment of the Pension Protection Act of 2006 (the “PPA”), this requirement had been a
major source of concern and controversy with respect to cash balance plans, which, in
addition to pay credits, take into account interest credits that must be projected to normal
retirement age in determining annual benefit accruals. Where projected interest credits are a
component of the accrued benefit, all other things being equal, younger participants could be
viewed as accruing benefits at a greater rate than older participants because they are further
away from the normal retirement age; thus, their annual accrual must take into account more
years of projected interest credits. The PPA, however, clarified the status of cash balance
plans with respect to issues of age discrimination and plan conversions.
17
18
19
20
21
In Pippin v. Burlington Resources Oil & Gas Co., 440 F.3d 1186 (10th Cir. 2006), the 10 th Circuit provided: “Corporate
restructuring, performance-based evaluations, retention decision based on needed skills, and recruiting concerns are all reasonable
business considerations. And or course, in Smith, the U.S. Supreme Court found: “the City’s decision to grant a larger raise to lower
echelon employees for the purpose of brining salaries in line with that of surrounding police forces was a decision based on a
“reasonable facto[r] other than age’ that responded to the City’s legitimate goal of retaining police officers. Smith v. City of
Jackson, 544U.S. 228 (2005).
Meacham v. Knolls Atomic Power Laboratory, 128 S. Ct. 2395 (2008).
29 U.S.C. § 623(a)(3).
29 U.S.C. § 623(i)(1)(A).
29 U.S.C. § 623(i)(1)(B).
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7.18 In addressing the problem of age discrimination, the PPA provides a “safe harbor” under
which a defined benefit pension plan (including a cash balance plan) is not discriminatory if,
on any date, a participant’s accrued benefit is at least as great as that of any similarly situated,
younger individual who is or could be a participant. For this purpose, the accrued benefit can
be expressed as either an annuity payable at normal retirement age or the balance of the
hypothetical cash balance account. In applying this requirement, a similarly situated
individual is identical to the participant in every respect (including period of service,
compensation, position, date of hire, and work history, and any other respect), except for
age. The subsidized portion of any early retirement benefit or retirement-type subsidy is
disregarded in this calculation.
7.19 To date only proposed regulations have been issued interpreting the PPA’s age discrimination
safe harbor. It is possible that final regulations may change or eliminate the safe harbor in
certain circumstances. If that turns out to be the case, an employee benefit plan would be
subject to the general age discrimination rule under ADEA, i.e., the rule that provides that the
rate of an employee’s benefit accrual cannot be reduced because of the attainment of any age.
As noted above, application of this rule to cash balance plans was the subject of much
litigation prior to the PPA.
7.20 In order to be treated as satisfying the age discrimination prohibitions of ADEA, the PPA
further requires that cash balance plans satisfy certain interest rate requirements. Generally,
the interest crediting rate used to calculate interest on the hypothetical account balances must
not exceed a market rate of return. A plan does not fail to meet this requirement merely
because the plan provides for a reasonable minimum guaranteed rate of return or for a rate of
return that is equal to the greater of a fixed or variable rate of return. Also, a cash balance
plan must provide that an employee who completes at least three years of service has a nonforfeitable right to 100% of his or her accrued benefit derived from employer contributions.
7.21 With respect to plan conversions, the PPA prohibits the “wear-away” of accrued benefits
resulting from the conversion of a traditional defined benefit plan to a cash balance plan. The
PPA accomplishes this by requiring that a participant’s accrued benefit equal the sum of the
frozen benefit under the old plan and the benefit accrued under the new cash balance plan
(i.e., “A + B”).22 As is the case with the PPA age discrimination safe harbor, to date only
proposed regulations have been issued interpreting the PPA conversion rule.
7.22 Under the ADEA, an employee benefit plan may not require an employee to retire
involuntarily due to attainment of a specific age. There is a specific exception for certain
executives who can be subject to a mandatory retirement age of 65 or higher if they’re
entitled to an annual retirement benefit of at least $44,000 per year and certain other criteria
are met.
22
“Greater of A or B” formulas are no longer allowed. Under the “greater of A or B” approach, participants with a significant frozen
benefit would not accrue any additional benefit under the plan until some time had passed (i.e., until the cash balance benefit
exceeded the frozen benefit), during which time the excess benefit under the frozen plan formula was said to “wear away.”
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BIOGRAPHIES
JANE MARSHALL – E-mail: Jane.Marshall@macfarlanes.com
Jane Marshall has specialised in pensions law since 1981,and is a partner with Macfarlanes LLP in
London. A founder member of the Association of Pension Lawyers, she has served on various
industry committees and edited and co-authored a number of books including Pensions Act 2004
(Law Society 2005). Recognised since inception in the relevant sections of Legal 500 and Chambers,
particular professional interests include the IORP Directive, deficits and the management of risk.
GRÉGORY OLCZAK-GODEFERT – E-mail: gregory.olczak-godefert@allenovery.com
Grégory Olczak-Godefert is a senior associate of Allen & Overy LLP in the Paris office. He joined
the Employment and Benefits department in December 2001. Grégory advises on all aspects of
general employment law matters and has particular experience in advising clients on restructurings
and collective redundancies. Grégory also has experience in individual and collective litigation.
Grégory has the title of specialist in employment and social security law delivered by the Paris bar.
FRANCES PHILLIPS TAFT – E-mail: fphillipstaft@faegre.com
Frances Phillips Taft is a dual-qualified attorney (US/UK) and a Fellow in International Legal
Practice (UK College of Law). Fran is a member of Faegre & Benson international employment and
employee benefits practice. Her practice focuses on international pensions, cross-border
compensation, employee benefits, equity and incentive plans. She has contributed to several
professional textbooks including, Tolley's International Pensions and Benefits Textbook (Lexis Nexis,
2006); Pension Scheme Deficits (Global Business Publishing, 2007) and BNA's International Labor
and Employment Laws( 2009).
WIJNANDA RUTTEN – Email: wijnanda.rutten@allenovery.com
Wijnanda Rutten graduated in 1990 at the University of Amsterdam in Dutch law and is counsel at
Allen & Overy LLP in the Netherlands, specialized in pensions. The global pension practice of Allen
& Overy LLP has both in 2008 and 2009 been appointed as the Global Pensions - Law Firm of the
Year. She was in 2008 appointed by the Dutch Queen as a deputy justice at the court of appeal in
Amsterdam and is a member of the board of advice as well as the editorial board of PBM, a Dutch
organisation for pension management.
SUSAN P. SEROTA- Email: Susan.serota@pillsburylaw.com
Susan Serota is a partner in the New York office of Pillsbury Winthrop Shaw Pittman LLP, and
National Chair of its Executive Compensation and Employee Benefits practice. She received her law
degree from New York University School of Law. Ms. Serota is a past Chair of the ABA Section on
Taxation and has served as Co-Chair of IPEBLA. Ms. Serota serves on the Advisory Committee to
the Commissioner of the Internal Revenue Service on Tax Exempt and Governmental Entities. Ms.
Serota is a past President of the American College of Employee Benefits Counsel. She is the Editor
of ERISA Fiduciary Law, Second Ed. (BNA Books 2006, Supp. 2007). Ms. Serota has been listed in
the First Tier of Executive Compensation and Employee Benefits lawyers by Chambers for the past
several years.
IPEBLA 2009
European Issues Workshop: Age Discrimination
20