When new laws to combat ageism came into force two years ago, employers predicted a wave of litigation and a bundle of new red tape. But as ministers prepare to bring in further changes to discrimination laws in the shape of a single Equality Bill expected in the Queen’s Speech next week, were those fears justified? How well are the new laws working?

The purpose of the proposed Equality Bill is to create a simpler framework to tackle disadvantage and discrimination by consolidating the present legislation into a single Act. Although the Government has not yet published a draft Bill, in its response to the consultation published in July it indicated that the Bill would extend unjustifiable age discrimination to those providing goods, facilities and services and carrying out public functions.

Pensioners may therefore be protected from age discrimination in areas not now covered, such as health and financial services: some insurance companies, for instance, have upper age limits for life insurance or holiday cover.

To that extent the new laws will be welcome, although concerns have already been voiced — including by Baroness Hale of Richmond, in her recent speech to the Employment Lawyers Association — as to how far the new Bill will tackle underlying problems with discrimination laws and their failure to achieve swift results.

But what of the impact of age discrimination laws? To ascertain this, Herbert Smith commissioned a study with key multinational clients. The interviews were conducted with senior HR and legal counsel from a range of sectors: consumer goods, energy and utilities, media and publishing, technology and financial services.

The key finding is that the legislation has had less impact than was feared. Employers have faced relatively few claims and where claims have been brought, they have often been added to other claims to generate leverage, rather than being the primary focus. It is much more common for employees to allege sex or race discrimination, two areas where employers appear to be more concerned about potential exposure.

The statistics from the Advisory, Conciliation and Arbitration Service (Acas) support this. In 2007-08 the number of claims conciliated by Acas for age discrimination was 2,652 compared with 4,060 for race discrimination and 9,407 for sex discrimination. Moreover, about 42 per cent of the age claims were brought in conjunction with other employment claims. Most reported age-discrimination cases concern termination-related claims.

The downside is that the relative dearth of cases has meant that there is a lack of clarity over the effect of the legislation. Nowhere is this more so than in justifying discrimination. Discrimination on the ground of age is lawful where it is “a proportionate means of achieving a legitimate aim”, a particularly “legalistic” formulation.

Inevitably, the relative lack of guidance on what proportionality means in practice is a frustration to many of those surveyed. It makes it difficult for legal counsel and HR to give clear answers as to whether a policy is vulnerable to challenge. Despite this lack of clarity many of those surveyed were pleasantly surprised that policies had not been challenged on the ground of age, even in circumstances where technically they were possibly subject to challenge (for example, long-service awards). This was attributed to the idea that employees thought that the policies were fair.

A common theme that did emerge was that the legislation creates unnecessary red tape. Many employers have not seen the need to change existing policies, but have had to carry out extensive audits of policies to assess whether any discriminatory elements are justified and proportionate. In many cases, employers say this has been a time-consuming and costly exercise in proving the obvious. Perhaps unsurprisingly, most employers are waiting for a test case to see where the boundaries will be set. After doing an initial review, further changes will be driven by rulings in employment tribunals.

Where employers have implemented changes to reflect the legislation,these have mainly been in recruitment (for example, the wording of job adverts), incentive schemes and terminations, including increasing the retirement age to 65 as permitted under the UK regulations. The Government has said that it will review this again in 2011 but, by then, the relevant provision may have been held to contravene EU law in the Heyday case awaiting the judgment of the European Court of Justice. If, as seems likely, the court follows the recently published opinion of its Advocate-General — that such a provision is lawful only if justified — it will be for the UK courts to decide if the Government has sufficient evidence of justification.

So what should in-house lawyers be doing now? Be prepared to act quickly to review the detail of benefits policies based on age or length of service, once we have clear judicial guidance on the test for justification (expected early next year). In-house lawyers will need to have at their fingertips information about why certain benefit schemes were designed in a particular way and evidence of how they achieve legitimate aims. In view of the economic climate, a key area will be enhanced redundancy schemes: it is likely that younger employees will increasingly start to question their smaller entitlements. Watch this space . . .

The author is a partner at Herbert Smith LLP

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