Age discrimination and employee share plans
The Court of Appeal has recently overturned a decision by the Employment Appeal Tribunal on age discrimination regarding an employee share plan. The new decision highlights that it may be appropriate for employers to discriminate based on age, but only in certain circumstances. Some share plan rules may include age limits for retirement – if this is the case, it is worth reviewing the position to ensure that your share plan does not inadvertently create a risk of age discrimination under the Equality Act 2010.
In this case, the claimant was entitled to receive share awards under the employee share plan. He retired at 50 under the company’s defined benefit pension scheme. The employee share plan stated that the vesting of awards (meaning that the claimant could sell his shares) would be accelerated as he was retiring. The share scheme rules defined retirement as "separating from service with the Company . . . on or after a customary retirement age for the Participant’s location, with a fully vested right to . . . immediate benefits under a retirement income plan".
However, the company replaced the defined benefit pension scheme with a defined contribution pension plan under which the earliest age at which a pension could be drawn was 55. This meant that the claimant’s unvested shares were not accelerated under the share scheme as he was no longer considered to be retiring, and those shares were forfeited. The tribunal accepted that this was direct age discrimination but ruled that it was justified as a "proportionate means of achieving a legitimate aim" under the Equality Act 2010.
The Employment Appeal Tribunal overturned this decision, but it has now been overruled by the Court of Appeal. The court found that the company’s rule excluding employees from retiring under the age of 55 was entirely proportionate and encouraged employees to remain with the company under the share scheme until a certain age. This was a legitimate commercial aim of the employee share plan.
The introduction of the Equality Act 2010 had broad sweeping implications for share schemes. As this case demonstrates, some forms of age discrimination are lawful whilst others are not where they cannot be justified. In particular, some older share schemes can include retirement as a good leaver provision, where rights to the shares are accelerated based upon attaining a certain age. It is these schemes which are most at risk of challenge under the Equality Act 2010.
Employees who cannot participate in a share scheme because of their age may be able to bring a claim at an employment tribunal. The RM2 Partnership can review your Enterprise Management Incentive Plan ("EMI") or Share Incentive Plan ("SIP") scheme rules and recommend changes to reduce the risk of challenges under the Equality Act 2010. Please do get in touch if you have any concerns on this matter or require further advice by calling us on 0208 949 5522 or by email at firstname.lastname@example.org.