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Redundancy - Contradictory New Rulings On Ageism May Lead to Unfair Dismissal

Ageism in the workforce is reflected in 'out of date' rules on redundancy payments and piece-meal solutions to contradictory rulings are making life difficult for employers who are preparing for the introduction of EU-driven legislation outlawing age discrimination.

A call today on our Redundancy Hot-Line started us thinking again about the contradictory implications of old legislation on new rulings on Ageism, due to come into force in the UK in October 2006.

At the moment the European Equal Treatment Directive, commits the UK Government to introducing legislation outlawing age discrimination in employment and vocational training, by October 2006, but critics say that so far the government has been acting only in employer’s best interests.

In July 2005, the Government published the draft regulations on age discrimination. Whilst the regulations are subject to further consultation and some elements may therefore change, they provide a strong indicator as to how the legislation will be implemented in 1st October 2006.

Under the draft Regulations, the Government is proposing that the qualifying lower and upper age limits for redundancy payments and the right to claim unfair dismissal is to be scrapped.

For each complete year of continuous service between the ages of 18 and 21, employees receive half a week's pay. For each complete year of continuous service between the ages of 22 and 40, they receive one week's pay. For each complete year of continuous service between the ages of 41 and 65 you will receive 1½ weeks' pay.

Current rules state that once an individual reaches 64, the amount due is reduced by one-twelfth for every complete month you are over 64. This means that if you are 65 or over you are not entitled to any payment!To help you work out any payment, the UK Department of Works and Pensions kindly provide a Ready Reckoner for calculating the number of week's pay due. (For an official definition of a week's pay you'll need to consult Redundancy Payments.

 The level of statutory redundancy payments in the UK is already among the lowest in the EU and the level of the 'multiplier' (week's pay) is still to be determined!The Government is proposing that the current service-related qualifying periods to make claims and the use of length of service (20 year cap) in calculating payments will remain.  These current 'tapering down' provisions, which reduce awards in the period leading to the current upper age limit, will end, as will the use of age bands in calculating payments.

Whilst there is some support for the decision to maintain the length of service factor in the calculation of compensation, observers believe that the 20 year cap on length of service is unfair and arguably indirectly discriminatory.

With regards to redundancy, the consultation paper states that a policy objective is to encourage culture change whereby employers retain workers past retirement age “Because they recognise the continued valuable contribution that they can make, not because it is cheaper to make them redundant”. (IPD. Policy Document - Age Positive clearly states that research finds no age difference in worker's effectiveness)However an alternative view, is that the setting of a default retirement age will encourage some employers to retire workers once they reach 65 rather than face higher redundancy costs should this situation arise once the worker is over the default retirement age.

Despite the assertion in the consultation document that the default retirement age is not a mandatory retirement age, it is believed by trade unions that many employers may seek to treat it as such.

In our opinion, older workers should receive 'Affirmative Payment' recognising their length of service and taking into account that a person made redundant after the age of 50 is eight times less likely to return to work than a person made redundant at a younger age (Employment and Older People: Help the Aged Policy Statement 2004)Employment lawyers suggest that employers should now check their redundancy schemes and, as with the statutory scheme, remove any unjustifiable age-discriminatory provisions. Employers should also be careful of selecting employees for redundancy in a way that could be considered discriminatory. Redundancy selection based on “flexibility” or “last in, first out” could be construed as discriminatory and should be examined sooner rather than later.

The biggest impact the legislation will have is on dismissal procedures. Upper age limits for claiming redundancy or unfair dismissal is extended beyond the normal retirement age. It is advisable for the employer to set a new retirement date.

Failure to do this will increase the risk of the employee claiming that the real reason for any future dismissal is not retirement, but for some other reason such as 'redundancy' or 'capability.

' In such a case according to Richard Butler International Lawyers, "The dismissal would be unfair, unless the statutory procedure has been followed.

"Failure to follow the proper procedure on retirement could expose the employer to an unfair dismissal claim resulting in a basic and compensatory award of a maximum of £58,400. (as of February 2006) or possibly an order for reinstatement or engagement. Potential claimants will have three months (from the date the complained of took place) to being a claim in the Employment Tribunal. (County Court - six months)Employers should decide their position on age, audit employment policies for age bias, particularly considering for example recruitment and benefit schemes, access to training and opportunities for promotion, equal opportunities and redundancy policies.

A planned retirement procedure should be formulated and a 'duty to consider' procedure. Employers should start NOW as eradicating ageist attitudes and implementing change will take time.

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Margaret Stead is a Business Psychologist and specialist in career change, job search and outplacement strategies. Her team of coaches and her organisation - CareersNet offer 'state of the art' outplacement and redundancy programs for people going thru any form of career transition using compassionate coaching, new media and the power of the Internet to accelerate job change. If you'd like to learn more about how CareersNet's affordable programs can benefit your staff or yourself visit her site at and sign up for her regular newsletter.

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