Jo Keddie: Legally-compliant long-service award schemes

The culture of long-service awards is well established in the UK, but how can employers ensure they stay on the right side of the law?

Employers may have moved away from the time-honoured carriage clock to gift vouchers and celebratory dinners for long-service awards, but many continue to operate long-service schemes as a way of acknowledging and appreciating staff loyalty, irrespective of an employee’s role within the organisation.

When the Equality Act 2010 was implemented, many employers became concerned about whether the practice of rewarding staff for long service would fall foul of the legislation, mainly because such awards could give rise to age discrimination.

This is because employers that offer long-service awards will almost certainly indirectly discriminate against younger employees who, simply because of their age (a protected characteristic under the Act), are less likely to have accrued long service in comparison with their older colleagues.

Fortunately, the Act does contain comprehensive provisions in respect of long-service benefits, and such perks will be relatively easy to justify for most organisations. However, employers should still proceed with caution, because unless they can rely on an exemption or justify the benefit, there is a real risk that they will face employee claims of age discrimination which, if successful, can result in uncapped damages against the employer.

Indirect age discrimination

An employer will indirectly discriminate against an employee by applying a provision, criterion or practice that is discriminatory in relation to the employee’s age if it applies, or would apply, to employees that fall within a different age group to the relevant employee; if it puts, or would put, anyone who is within the employee’s age group at a particular disadvantage when compared to other employees in other age groups; if the provision, criterion or practice puts, or would put, the employee at the same disadvantage as those in the same age group as the employee; or if the discrimination is not a proportionate means of achieving a legitimate aim.

Justifying long-service benefits

Under the Act, if long-service benefits are based on length of service of up to five consecutive years, they will fall under the absolute exemption provided by the Act. Consequently, if employers provide length-of-service benefits up to five years, they do not need to justify the potential age discriminatory aspect of such benefits.

This exemption is becoming increasingly relevant because it is now common for employers to offer benefits for shorter periods of service as a way of retaining staff in an environment where workforce loyalty and retention is becoming a real challenge for many organisations.

For benefits based on length of service above five years, employers can also justify any indirect age discrimination by showing that the long-service benefit reasonably appears to fulfil a business need (another exemption under the Act).

This test is not overly prescriptive, and it is not as onerous as the general indirect age discrimination justification, which requires employers to show that the relevant provision, criterion or practice is a proportionate means of achieving a legitimate aim.

Rewarding loyalty

Therefore, many organisations can justify long-service benefits on the basis that they are a way of rewarding loyalty, motivation or experience. This will be especially important to industry sectors that are prone to high employee turnover, such as the retail trade.

Some employers are also referring to such benefits as ‘loyalty awards’, rather than ‘long-service benefits’, to describe their underlying principle more accurately.

Employers should ensure they document the fact that they have considered the age discrimination implications of long-service benefits, and they should also record the reasonable rationale for believing the benefits are fulfilling a business need.

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It would therefore be prudent for employers to conduct ongoing monitoring, including obtaining employee feedback, and regular reviews of their long-term service benefits in order to protect their position.

Jo Keddie is a partner in the employment team at Winckworth Sherwood