In general, employers do not need specifically to justify using length of service to calculate pay, according to the European Court of Justice (ECJ) in Cadman v Health and Safety Executive (Case C-17/05, 3.10.06). An employer will only have to justify using this system for a particular job if a worker can provide evidence raising serious doubts that this is an appropriate way of rewarding experience.
This case was about equal pay – that is, sex discrimination in pay. However, it is also very relevant to age discrimination, as the main issue was whether using length of service as a criterion is objectively justified. Using length of service in workplace policies is a prime example of potential indirect age discrimination, as older workers will tend to have longer service than younger workers.
The female claimant brought an equal pay complaint comparing her pay with that of four male comparators. Her employer explained the discrepancy in pay on the basis that it operated a differential remuneration system, where pay increased according to length of service. The system tended to disadvantage women, who had shorter service than men in the relevant part of the organisation. The employee claimed that this system indirectly discriminated against women, and so needed to be objectively justified by the employer. She also claimed that the employer had failed to provide this justification.
The claimant was successful before the employment tribunal. However, the Employment Appeal Tribunal decided - on the basis of previous decisions of the ECJ - that there was no need for an employer to provide specific justification where length of service was used as a criterion.
On appeal, the Court of Appeal decided to refer the issue to the ECJ, on the basis that the previous case law was unclear. The decision of the ECJ in the Danfoss case  IRLR 532 established that length of service was generally objectively justified, on the grounds that “length of service goes hand in hand with experience”, and so there was no need to look at the employer’s specific justifications on the facts of the case. But the Court of Appeal thought that a number of later cases suggested that the ECJ was having second thoughts about this principle.
The ECJ decided:
- As a general rule, use of length of service as a criterion is an appropriate way to reward experience which enables a worker to perform his or her duties better. The employer does not need to specifically justify why this is appropriate for a particular job.
- The employer can be required to specifically justify using this criterion if the worker can provide evidence which raises serious doubts that this is an appropriate way of rewarding experience for a particular job.
- Where an employer uses this kind of pay system, there is no need to show that each individual worker has actually acquired experience during the relevant period which enables them to carry out their duties better.
The question of whether use of length of service as a criterion is generally objectively justified is very important in the context of age discrimination. The Employment Equality (Age) Regulations 2006 contain special rules about basing certain benefits on length of service. However, where benefits are based on length of service over five years, the employer must show that this fulfils a business need. This will now be easy to do in most cases, as the ECJ has confirmed that using length of service is generally objectively justified because it rewards experience – which clearly meets a business need.
There are implications for many other areas where length of service may be taken into account by an employer and so result in indirect age discrimination, such as promotion systems based on length of service. Again, the ECJ ruling suggests that these will be not be difficult to justify in most cases.
Employers can, however, be challenged if an employee can produce evidence showing that this is not an appropriate way to reward experience in a particular case. The ECJ judgment does not comment on what such evidence might be. It may be that it will be more difficult to rely on a general rule about length of service where you are comparing employees with relatively long service. For example, is it right to assume that an employee with 20 years of service has more valuable experience than an employee with 10 or 15 years of service? If a younger employee can show that he or she actually has a lot more relevant experience than an older long-serving employee - and the employer has adopted a system that is entirely based on length of service without any other performance or actual experience criteria - this may be enough to require the employer specifically to justify applying the rule to that particular job.
Cadman -v- Health and Safety Executive ECJ (Case C-17/05, 3.10.06)