The implications of new overseas discrimination laws on multinational corporations
Recent developments in the employment discrimination laws of European Union (EU) member states, and the United Kingdom (UK) in particular, have highlighted the need for United States multinational corporations to be increasingly attentive to the rapidly developing labor and employment laws abroad. Such overseas legal developments will affect multinational corporations in areas including local compliance, global human resources, mergers and acquisitions, employee benefits, and even advertising.
Discrimination developments in the EU: Employment Equality Directive
First, a brief historical review: On December 2, 2000, the Employment Equality Directive became effective in the EU, establishing minimum requirements to combat employment discrimination and requiring member states to legislate toward equal treatment in the areas of disability, religion, sexual orientation, and age. The Directive covers direct and indirect employment discrimination, applies to the public and private sectors, and encompasses working conditions, access to employment and vocational training, and membership in workers’ or employment organizations. Most of the 27 EU member states had three years from the Directive’s passage to legislate accordingly in the areas of religion and sexual orientation, and an additional three years to legislate in the areas of age and disability.
All of the member states transposed some version of the Employment Equality Directive into national law by the deadlines. However, on January 31, 2008, the EU sent “reasoned opinions” to 11 member states—Czech Republic, Estonia, Ireland, Greece, France, Italy, Hungary, Malta, Netherlands, Finland, and Sweden—that have not fully or correctly transposed the Directive into law. These reasoned opinions are the second stage of the EU’s infringement process, and the member states have two months to respond appropriately, or risk being taken to the European Court of Justice for further proceedings.
Although the employment discrimination laws of these remaining countries will likely undergo further revisions in the face of an EU infringement action, the finalized and approved regulations that were passed in the UK in response to the Directive just met their first interpretational challenge at home.
Age discrimination developments in the UK: Employment Equality (Age) Regulations 2006
The Employment Equality (Age) Regulations 2006 were implemented in the UK to comply with the legislative requirements for age discrimination of the European Employment Directive. The regulations became effective in the UK on October 1, 2006, and cover employees of all ages working in the UK, including foreign employees. These regulations delineate a national default retirement age of 65 and the rights of employees to work beyond that age. They also prohibit discrimination, harassment, and retaliation by employers of employees on the basis of age.
Different from laws in the United States, the focus is on prohibiting discrimination against older or younger employees; thus, the focus is not primarily on protecting older workers from age discrimination. Employers are prohibited from directly or indirectly discriminating against employees on the basis of age, unless the discrimination can be objectively justified by the employer. This test (which on its face is similar to the “Reasonable Factors Other Than Age” [RFOTA] defense under United States law) is unique to age discrimination law in the UK and is satisfied if the employer can show that the discriminatory action is of “proportionate means to pursue a legitimate aim.” But what does “proportionate means to pursue a legitimate aim” mean?
Bloxham vs. Freshfields Bruckhaus Deringer: The first test of the Employment Equality (Age) Regulations 2006
Bloxham vs. Freshfields Bruckhaus Deringer, decided on October 10, 2007, was the first major test of the UK’s Employment Equality (Age) Regulations 2006.
From 2002 to 2006, Freshfields Bruckhaus Deringer, an international law firm operating as a partnership under English law, engaged in a thorough and democratic review of its pension scheme for partners because of the “intergenerational unfairness” caused by the existing scheme (younger partners were contributing to the scheme in order to fund pensions of the older generation, but those funds would be increasingly smaller by the time the younger partners retired). Freshfields reformed its pension scheme in May 2006. Mr. Bloxham, a partner at the firm, claimed that the transitional arrangements in the new scheme for those 50 and older forced him to retire at age 54 and caused him to receive 20% less in pension benefits than he would have received had he remained employed until he was 55. He therefore alleged that he was treated less favorably because of his age.
The Employment Tribunal found that the transitional arrangements between the old and new pension schemes were potentially discriminatory, and held that the potentially discriminatory treatment by Freshfields was outweighed by Freshfields’ “proportionate means used to pursue a legitimate aim.” In other words, the Tribunal held that Freshfields was objectively justified in amending its pension scheme because the pension amendments were aimed at lessening the intergenerational unfairness caused by the existing scheme and there was no less discriminatory solution that could have been conceived.
These recent EU developments highlight the need for United States multinational corporations to be increasingly attentive of the rapidly developing labor and employment laws abroad. Indeed, further east, Japan and China have recently amended their laws to address employment discrimination. Japan’s Employment Promotion Law—effective as of October 1, 2007—addresses employment discrimination based on age in recruiting and hiring (and covers employees both old and young, foreign and domestic). China’s Employment Promotion Law—effective as of January 1, 2008—addresses employment discrimination based on ethnicity, race, gender, disability, and religious belief (and gives employees, for the first time, the right to sue employers for discrimination).
United States multinational corporations need to understand the potential ramifications of noncompliance with overseas labor and employment laws, including the employment discrimination laws discussed above. Employers should review their recruiting, hiring, training, promotion, harassment, and benefits policies for potential implications of such discrimination laws. Multinationals also need to be increasingly vigilant in following the developing labor and employment laws abroad, as this area of law is changing rapidly, and ignorance of the requirements is not an acceptable alternative.