Select Committee on Education and Employment Appendices to the Minutes of Evidence


APPENDIX 20

Memorandum from the Confederation of British Industry (CBI)

  1.  The CBI believes that it is in the interests of both society and business to tackle unfair age discrimination and the low levels of labour market participation amongst older workers. The pressure of an ageing population makes it all the more critical that the trend towards early exit from the labour market is not just stemmed, but reversed. Many groups have campaigned for age discrimination law as part of the solution to raising the employment rates amongst older workers. But employers' organisations, including the CBI, have argued that in practice, drafting workable legislation is extremely difficult.

  2.  Member companies are very concerned that the new EU Directive, which prohibits age discrimination, has not created that workable framework of law. The debate on age has not yet matured and there is no agreement on what kind of age-related employment practices should be considered fair or unfair. This lack of consensus is reflected in the opaque drafting of the Directive. In order to ensure that only "unfair" treatment on grounds of age is prohibited and that employers have legal certainty as to what that means, we believe that considerable preparatory work will be necessary before the Directive comes into force in the UK. The CBI therefore recommends that:

    —  the Government should develop a national debate on what type of age discriminatory practices should be considered unfair, as opposed to those practices which are justified by legitimate business factors;

    —  there should be full, early consultation on the draft implementing regulations;

    —  employers must be given proper guidance on what kind of employment practices will be considered illegal, with a long lead in time before the law comes into force in order to achieve widespread compliance.

  And given that legislation on its own may have little impact on the employment rates of older workers, we believe that Government policy should continue to focus on other barriers to participation, such as inflexible retirement rules and skills issues.

  3.  This paper addresses the key issues raised in the Committee's consultation. It sets out the CBI's views on:

    —  the causes of low participation rates amongst older workers;

    —  why age discrimination in the workplace, unlike other forms of discrimination, can often be justified;

    —  why age discrimination law could lead to legal uncertainty and high levels of litigation, whilst at the same time doing little to improve the job prospects of older workers;

    —  the steps the Government should take to ensure careful implementation of the Directive and to tackle other barriers to labour market participation facing older workers.

LOW PARTICIPATION RATES AMONGST OLDER WORKERS ARE A SERIOUS AND GROWING PROBLEM

  4.  The drop in employment rates for the over 50s has serious, negative consequences for individuals, employers and society as a whole. Although the proportion of older women in the workplace has increased, the employment rate for men and aged between 50 and 65 has fallen from 84.2 per cent in 1979 to 68.7 per cent in 2000. For the individual, involuntary withdrawal from the labour market may lead to poverty and low self-esteem. For business and the economy, the failure to develop or capitalise on the skills offered by older workers will damage businesses productivity and competitiveness. This loss is exacerbated at a time when the labour market is tight and where, in some areas, severe skills shortages have emerged. In turn, high numbers of older people out of work will put an unsustainable burden on the public purse in terms of the extra benefits paid out and lost taxes. With an ageing population and shrinking numbers of young people entering the labour market, it is all the more critical to address the long trend for early exit or early retirement.

  5.  There are a variety of causes of the low employment rates amongst the over 50s and policy responses need to be tailor-made to that effect. Wide-scale job losses following industrial and economic restructuring since the 1970s, in particular in manufacturing, mining and construction, have had a disproportionate impact on older, male workers. Although new job opportunities have been created, particularly in the service sector, many older workers have not benefited from these opportunities, either because the new jobs created are not in their locality or because individuals themselves do not have the relevant skills and experience. More than a quarter of older workers have no qualifications, compared to around 8 per cent of 20 to 29-year-olds and older people are far more likely to have literacy and numeracy problems.[31] This skills barrier is accentuated by the rapid pace of technological change and the high demand for ICT skills, which many older people have not acquired.

  6.  Whilst it is true that for some people early retirement may not have been a free choice, it is important to recognise that there is a group of older workers—around a third of all retirees—who do leave entirely voluntarily, trading off income for leisure.[32] With real incomes almost double what they were in 1970, coupled with the growth in occupational pension schemes, taking early retirement is an attractive, feasible option for many. Such a trend is likely to continue as society becomes increasingly affluent.

  7.  This is not to deny that discrimination has hampered the position of older workers in the labour force. Stereotypical attitudes about the capabilities of older people, which are found throughout society, are reflected in the workplace. Such attitudes lead to unfair treatment and should be tackled. This is why the CBI supported the DfEE's voluntary Code of Practice on Age Diversity, as a means to challenge those stereotypes and get employers to review existing policies and practices. However, it is important to make the distinction between blatant ageism on unjustified social stereotypes, and employment practices, which do treat younger and older workers differently, but which are not necessarily "unfair".


TREATING PEOPLE DIFFERENTLY FOR AN AGE-RELATED REASON IS NOT NECESSARILY "UNFAIR" AGE DISCRIMINATION

  8.  Age discrimination is distinct from other grounds of discrimination because there are a range of circumstances where differential treatment on grounds of age could be considered both fair and necessary. This applies not only in employment matters, but in other areas such as healthcare and social security. Unlike with sex, race, religion or sexual orientation, an individual's age is neither fixed, nor "impact neutral". This means that for an employer a person's age may be considered a relevant factor when making key employment decisions.

  9.  A person's age is sometimes taken as a proxy for their physical fitness. This reflects society's assumption that health inevitably declines with age. We recognise that such assumptions can have discriminatory consequences if perfectly fit, well-qualified individuals are barred from jobs which have unjustifiable, maximum age limits. However, there are some areas of employment, where physical risk factors do escalate significantly with age. Examples might include aircraft pilots, divers and offshore riggers. These much higher actuarial risks will affect the employer's liability for both insurance and health and safety requirements. Few employers would want to take on the attendant risks to their workforce and their customers.

  10.  More controversial is the question of whether there is a link between age and other, non-physical competences. Again, the CBI believes that there is a pressing need to challenge stereotypes, such as the view that younger workers are "less reliable" or older workers are "less easy to train". However, we should be cautious about suggestions that there is no correlation at all between age and performance. Employers sometimes find that employees reach the peak of their potential during the middle of their career and it then becomes difficult to keep motivating them. As a consequence, performance may gradually decline as the employee sees no chance of gaining further promotion. The problem may be accentuated if the employer operates a seniority based pay system, leading to a growing mismatch between performance and pay. This connection between age, performance and pay is demonstrated by the behaviour of US employers following the gradual raising of the mandatory retirement age from 65 to 70 during the early 80s. Rather than continuing to employ staff over the age of 65, some employers preferred to buy out employees through substantial retirement packages. Some studies have also suggested that the subsequent ban on mandatory retirement will lead to increased dismissals of older workers on performance grounds.[33]

  11.  Cost considerations may also come into play during the recruitment process, especially if substantial training of new starters is involved. It seems reasonable for an employer to turn down a 62-year-old for a legal training contract on grounds that they would not expect to get a decent return on their investment. Other, non-cost related motives to treat older and younger workers differently might include the desire to protect younger workers from unemployment or to reward older workers for length of service. This is not an argument for the defence of the status quo. It is simply to point out that age issues tend to be far more complex than other types of discrimination, as the effects of a person's age may have an impact in the workplace.


AGE LEGISLATION RISKS LEGAL UNCERTAINTY, RISING LITIGATION AND IS UNLIKELY TO AFFECT EMPLOYMENT RATES

  12.  The CBI has so far opposed calls for new laws on age discrimination as we believe that:

    —  legislation is unlikely to achieve the legal clarity that employers need;

    —  such uncertainty in the law will leave employers vulnerable to high levels of costly, and potentially spurious, litigation;

    —  international comparisons suggest that legislation is unlikely to significantly improve the job prospects of older workers.

  13.  Given that age, unlike other grounds of discrimination, may be a relevant factor in the workplace, framing workable laws which set out clearly what an employer's obligations are, will inevitably be extremely difficult. In our view, the debate on age is at a relatively early stage and there is no societal consensus on when differential treatment of older or younger people is fair or unfair. Is it fair to offer seniority based pay and benefits, which reward long service, but which indirectly discriminate against younger workers, whose performance may be equally high? Is it fair to offer attractive voluntary redundancy packages to older workers, as a way to avoid compulsory redundancies and youth unemployment? Legislation is not the simple panacea that some people think. Without agreement on when age discrimination is justified, legislators will find it extremely hard to deliver law which resolves these uncertainties, but which allows employers the flexibility they need where age can be considered a relevant business factor.

  14.  Fuzzy new law on age becomes even more problematic when we consider that everyone "suffers" from age. This means that any day-to-day managerial decision could be challenged by a claim of discrimination on grounds of age, in a way which it could not be challenged on other grounds. For example, when recruiting or promoting staff disappointed applicants may find that the successful candidate is of a different sex or race to themselves, but they will almost certainly find that the successful candidate is younger or older than them. So almost anyone could make a preliminary case for age discrimination which could leave a sufficient margin of doubt for the claim to reach tribunal. And even if employers are able to justify their actions, they still have to spend a considerable amount of time and money defending the claim. Furthermore, because compensation in age discrimination claims would be uncapped, individuals claiming unfair dismissal would be encouraged to add age discrimination to their complaints in order to win the maximum award at Tribunal.

  15.  This risk that age legislation will simply fuel the rapid rise in litigation is backed up by the evidence from the US, which has had age legislation since 1967. Legislation there has made little progress towards its stated aim, which was to help overcome problems faced by older workers in getting jobs, and has instead been used primarily by individuals seeking to protect their position or challenge a dismissal.[34] Three-quarters of cases involve employee termination and the majority of plaintiffs are white men in their 50s in professional or other white collar occupations.[35] Although age legislation has recently been introduced in other countries, it is too early to assess its impact. However, what we can see is that, across the EU as a whole, only Sweden and Denmark—neither of which have age legislation—have higher labour market participation amongst older workers than the UK.


EU DIRECTIVE COULD CREATE AN UNWORKABLE FRAMEWORK OF LAW

  16.  CBI members, whilst broadly welcoming the Commission proposals for the two new anti-discrimination Directives, strongly opposed the age provisions. The real difficulty is that the Directive tries to treat age like other grounds of discrimination by shoe-horning it into the traditional direct/indirect discrimination model of discrimination law. Such a model is not appropriate firstly, because it is rooted in the assumption that direct discrimination is always unjustified—which we have already shown is not true in relation to age. It is useful to draw a comparison here with the way UK legislators dealt with the Disability Discrimination Act (1995) where the direct/indirect discrimination model was dispensed with as being ill-suited to disability issues. Although article 6 of the Directive does go on to say that Member States may set out in their national legislation circumstances where direct discrimination on grounds of age could be justified, this non-exhaustive list of derogations is extremely vague and confusing for employers. For example, it is unclear whether or not companies will be able to:

    —  enforce a contractual retirement age;

    —  offer higher rates of pay and benefits to reward long service;

    —  offer older workers more generous voluntary redundancy packages as a way of avoiding forced redundancies.

  17.  The second problem is that in applying the concept of indirect discrimination to age, the Directive fails to resolve the comparator issue. If a 55-year-old man believes that a particular job requirement indirectly discriminates against older people, what are the limits of the older worker's group, 50-65 or 40-64? And what are the ages of the comparator group? In sex and race discrimination, the parameters for the comparator groups are relatively clear, with female staff compared to male staff, ethnic minority staff compared to white staff. But with no natural boundaries, indirect age discrimination risks becoming a litigants' charter by which applicants can shift the goalposts to suit their own case.

CBI RECOMMENDATIONS

Employers need early consultation on draft regulations and guidance on compliance

  18.  The Government's priority must be to resolve the uncertainties contained in the age provisions when it comes to implement the Directive in national law. In order to achieve this, the CBI believes that the Government should launch a national debate to discuss what types of age discriminatory practices are fair and unfair. Once a consensus view has emerged, there will need to be a proper assessment of how each stage of the employment process—in recruitment, promotion, training, retirement and redundancy—would be affected by age legislation. The CBI urges the Government to make full use of the six year lead-in period on the age provisions in the Directive. Full and early consultation on the draft regulations, backed up by detailed practical guidance on compliance, will be crucial to ensuring that employers are able to amend their employment practices as necessary, well before the new law comes into force.

Promotion of Age Code and "Business Case for Age Diversity" Should Continue

  19.  The CBI strongly supports the DfEE's voluntary Code of Practice on Age Diversity and we believe that the Government should continue with its campaign. This should help prepare the ground for new law on age discrimination. We have been actively promoting the Code with our members and the positive feedback received shows that its messages have been taken on board. Not unexpectedly, good practice is most prevalent amongst larger organisations. Examples include the removal of age criteria in recruitment and redundancy, improved training opportunities for older employees, flexible retirement and target setting for workforce composition. The priority now should be to increase take-up levels of the Code, in particular by targeting SMEs.

  20.  The business case for age diversity is a strong one, particularly against the back-drop of a tight labour market. Between 1999 and 2000, the claimant count for those aged between 50 and the State Pension Age and who had been unemployed for more than two years fell by 18.6 per cent. The main reason for this drop is growth in the economy and employment, with the employment rate for this group rising by 2.4 per cent[36] This, in our view, is significant progress in a relatively short period of time. The longer-term challenge of changing demographics will focus employer attention on the need to recruit and retain older workers. But these market driven shifts in employer behaviour will take place much sooner if there is a sustained campaign which highlights these issues and sets out appropriate guidance on how to achieve age diversity in the workplace. The business case could be strengthened by highlighting to companies the lucrative opportunities to tap into the "grey" pound by developing new products and services geared towards older people.

Employers Support Flexible Retirement

  21.  Flexible working and phased retirement are practical ways to help individuals and organisations manage the last years of an employee's working life. Gradually scaling down work commitments helps individuals to make the transition—psychologically and financially—from full-time work into retirement. The benefit to the employer is that it enables them to retain valuable skills and expertise, and train up the next generation. However, employers have been frustrated by the complexity and rigidity of Inland Revenue rules which mean that an employee cannot move from full to part-time working with the same employer, whilst at the same time draw from an occupational pension scheme to make up for the lost income. The CBI welcomes the Government's commitment to revise the rules and urges it to take early action.

  22.  Whilst employers are keen to make use of flexible retirement schemes, they are much more cautious about changes to mandatory retirement rules. The passing of the EU Directive may well stimulate a debate on whether mandatory retirement ages should be raised or banned. Certainly, as society ages and longevity increases, Government may wish to review whether 65 is the right age limit for the State Pension Age. In the past, the CBI has argued for a flexible decade of retirement, where workers would be able to retire and receive their state pension at any point between 60 and 70, but with actuarial reductions and increases in the value of the pension according to the retirement date.

  23.  Employers would, however, be strongly opposed to a ban on contractual agreements to retire. Where both the employers and employee want to extend employment beyond that which they originally agreed, they are of course free to do so. But an individual should not be able to unilaterally, as a matter of right, override existing contractual agreements. The key issue for businesses in managing retirement is whether they are losing valuable skills by imposing blanket, unnegotiable age limits. The evidence suggests that current employment practices are on the right track, with nearly two-thirds of employers allowing all or some employees to stay on beyond retirement age if they wish.[37]

Skills Gap Must be Bridged

  24.  Tackling skills problems amongst older people out of work is critical. It is still too early to evaluate the impact of the New Deal for over 50s. However, we believe that with its emphasis on training, the New Deal could help reconnect this group of people to the labour market. Employers, unions and individuals all have a role to play in developing the employability of older workers and the CBI/TUC plans for partnership working on basic skills shows a business commitment to making serious progress on bridging the skills gap.

CBI Human Resources Policy

January 2001




31   DfEE Education and Training Statistics, ONS, 2000. Back

32   Performance and Innovation Unit, "Winning the Generation Game", 2000 & Labour Market Trends, September 2000. Back

33   Isacharoff & Harris, "Is age discrimination really age discrimination?: the ADEA's unnatural solution", New York University Law Review, vol.72 & Epstein, "Age Discrimination and Employment Law", address given to Canterbury Employers' Chamber of Commerce in Christchurch, 1999. Back

34   Donohue & Siegelman, "The Changing Nature of Employment Discrimination Litigation", 43 Stan. Law Review. Back

35   Shattuck, "Recipients of ADEA Settlements are Mostly Long-Term Male Employees" 7 Daily Lab, Report, 1984. Back

36   DfEE feature, "The position of Older Workers in the Labour Market", Labour Market Trends, September 2000. Back

37   DfEE Evaluation of the Code of Practice on Age Diversity in Employment, Interim Review, June 2000. Back


 
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