Employer's query:
Do we need to amend our share incentive plan rules or or operate share schemes differently to comply with the new age discrimination regulations?
Advice:
The Employment Equality (Age) Discrimination Regulations 2006 were effective from 1 October 2006. Share incentive plan (Sip) rules should be amended to remove any terms which are discriminatory unless the provisions are permitted or otherwise defendable under the regulations.
Typical provisions in plan rules and practice giving rise to concern include not granting awards to employees on the grounds that they are nearing retirement as not making an award on the grounds of age will constitute direct discrimination. Companies should remove from plan rules any provision which puts a blanket ban on granting awards to staff approaching retirement and consider whether to grant an award for each individual regardless of their proximity to retirement.
Employers should also watch out for terms providing for qualifying service periods. A qualifying service period of five years or less is permitted under the terms of the regulations, while a period over five years is permissible to the extent that the organisation reasonably considers that the requirement fulfils a business need.
Early vesting provisions which either favour or disadvantage retiring employees could also prove discriminatory. Plan rules should be amended to remove any distinction between retirement and early retirement, and retirees should be treated the same as all other leavers.
In circumstances where you need to amend your plan rules, the terms of the rules themselves need to be carefully checked to determine if the approval of shareholders, existing award holders or HM Revenue and Customs is required.
Monique Fry, senior associate at law firm Norton Rose