Regulatory Impact Assessments

Sex Discrimination (Indirect Discrimination and Burden of Proof) Regulations 2001

- implementing Council Directive 97/80/EC on the Burden of Proof in cases of discrimination based on sex

as amended to apply to the UK by Council Directive 98/52/EC.

REGULATORY IMPACT ASSESSMENT

1.                  Purpose and Intended Effect of the Measure

a.                  Identify the issue and objective – Implement the 1997 Burden of Proof Directive.  The Directive has two parts. 

·         The first is the shift in the burden of proof from applicant to respondent, once the applicant has established a prima facie case. 

·         The second is a definition of indirect discrimination  which is new to UK law and differs from the approach currently taken in UK legislation.

From this point, the RIA is divided into two, for ease.

PART I  Shift in the Burden of Proof

2        Risk assessment – it can be difficult for an employee to prove that the reason for an employer’s actions are founded in sex discrimination.  This is because the employer has all the documentation and details.  For instance, if a woman is interviewed and refused a job, she will find it extremely difficult to prove sex discrimination, because she does not have access to all the other applications or the employer’s reasons for hiring one person and refusing others.  One solution to this problem is to reverse the burden of proof, once a prima facie case is made out.  This means that once the applicant is able to show facts which would lead a Tribunal to presume or infer that there has been sex discrimination, they will then look to the respondent to prove that there has been no such discrimination.

3        Options

a.      Identify options

i.      Do nothing – leave the current case law to cover the situation.  The Equal Pay Act already requires the employer to show that any difference in pay between a man and a woman doing the same job, or work of equal value,  is because of reasons unrelated to sex.  In other cases of sex discrimination, and in race discrimination cases, Tribunals have a common  longstanding practice, based on the case of King v GB China Centre (1991), of inferring discrimination from facts which raise the possibility of discrimination, where the employer doesn’t provide a satisfactory alternative explanation.  

ii.      Legislate to shift the burden of proof through changes to Tribunal procedures – The possibility of changing the Tribunal procedures to reverse the burden of proof was considered.  Doubts have been expressed about the legality of using Employment Tribunal (Procedures) Regulations to achieve this, and there was also concern that this option would not cover vocational  training or employment of barristers and pupils in chambers,  where such cases are heard in county court rather than the Employment Tribunal.

iii.      Legislate, putting the shift in the burden of proof on the face of the SDA. – The preferred option for reasons of legality and clarity was to put this change on the face of the SDA.  However, the intention is not to shift the burden of proof for the entire scope of the SDA, just the sections dealing with employment and vocational training.

4        Issues of Equity or Fairness The shift in the burden of proof is considered fair, because generally an employer will keep records on employees or recruits interviewed which will allow him or her to explain why he or she did something, and if his or her reasons were not discriminatory, to show what the real reasons were.

5        Benefits

a.      Identify the benefits – the benefits are not easy to quantify, as the existing case law already provides for the same outcome in the overwhelming majority of Tribunal cases.  The main benefit will therefore be one of increased legal clarity.

b.      Quantify and value - The reversal of the burden of proof only comes into operation when the individual has made out their case.  There is no question of an employer having to disprove an accusation of discrimination by an employee who has no evidence to back up his or her claim.  Informed legal opinion has been that this will make very little difference in practice to the way in which sex discrimination cases are decided in the UK.

6        Compliance costs for Businesses, Charities and Voluntary Organisations

a.      Business sectors affected - all those who employ staff.  Charities and voluntary organisations will only be covered in respect of salaried staff, volunteers are not considered to be “workers” in EC legislation.

b.      Compliance costs for a “typical” business – the cost to an employer who is not discriminating should be nil.  A well-prepared employer is no more likely to lose a Tribunal case under the new test.

c.      Total Compliance Costs - Informed legal opinion has been that this will make very little difference in practice to the way in which sex discrimination cases are decided in the UK.  Compliance costs should therefore be minimal.  There were 4926[1] applications made to Employment Tribunals under the SDA in the last operating year.  The median compensation award in a Tribunal case taken under the Sex Discrimination Act is £4115[2].

7        Consultation with Small Business: “The Litmus test” – respondents to the consultation included:

·         Forum of Private Business – (25,000 member businesses, averaging seven employees each)  agreed with all our proposals, and commented that “Employers take action and must be able to justify them in objective terms if challenged.”

·         Small Business Service – made no comment on the Burden of Proof section of the consultation document.

·         Federation of Small Businesses – objected to the shifting of the burden of proof in principle but raised no specific objection to our proposed form of implementation

8        Identify any other costs – there may be some marginal costs to employers who are ill-prepared to defend a Tribunal case.  Once the applicant has made out their case of discrimination, it is for the employer to prove that he did not discriminate as alleged. The Tribunal will not have the discretion to find in favour of the employer even though there is an inference of discrimination. The applicant will need to establish sufficient facts before the burden shifts to the employer but an employer who is ill prepared to defend such allegations may find that they are unable to satisfy the burden of proof placed on them.

9        Results of Consultations – The majority of those who responded to the consultation stated that it would be preferable to make clear on the face of the act what is an already well-established, but poorly understood, practice of employment Tribunals.

10    Summary and recommendations – We recommend that the “shifting the burden” aspect of the Burden of Proof directive be implemented by changes on the face of the SDA.  This is recommended primarily in order to ensure that the Directive is correctly implemented but also for the sake of clarity and coverage of all training and employment, including those cases which are not heard in employment Tribunals, is explicit.

11    Enforcement, Sanctions, Monitoring and Review. – the primary route for enforcement of sex equality legislation is by the individual, perhaps supported by their trade union or the Equal Opportunities Commission, through the Employment Tribunal system.  Monitoring of the numbers of sex discrimination claims taken, and the percentage which are successful, is ongoing by the Employment Tribunal Service.  We will therefore be able to see if the number of applicants succeeding in Tribunal cases rises after this measure is implemented, though it will not be possible for the effect of this measure to be separated from the effect of other measures (i.e. the new definition of indirect discrimination, other equal pay measures) implemented at the same time.

PART II           New Definition of Indirect Discrimination

1          Risk assessment – Indirect discrimination occurs when the same requirement or condition is applied to women and men but impacts on one sex to their detriment in that a considerably smaller proportion of that sex can comply than the other and there is no objective reason irrespective of sex for the requirement or condition.  So, for example, it would be unlawful to set an absolute height requirement for security guards.  However, the Sex Discrimination Act currently offers a loophole to employers seeking to discriminate.  In this example, they are able to state that the height requirement is not an absolute bar to recruiting those below that height, it is merely their preference to recruit those over this height.  A woman will then have difficulty taking a claim of indirect discrimination, even if she is aware that the employer will never, in practice, recruit anyone below this height.  The directive definition is wider than the current approach taken in UK law, it would cover what an employer does in practice, as well as the policy he espouses.

2   Options

a.      Identify options – If we are to comply fully with the directive, we must amend the current definition of indirect discrimination in the SDA.  Currently the SDA only prohibits indirect discrimination where the employer is placing an explicit requirement or condition upon an employee.  This does not always cover situations where an employer is not applying a clearly discriminatory condition or requirement but is in practice applying criteria which are more difficult for women to meet than men, and which cannot be objectively justified.  An example of this might be where an employer was not openly discriminating in advertising certain posts but in practice regularly preferred candidates who had, say, demonstrated geographical mobility in taking previous jobs.  Another would be the preference for people over a certain height, detailed above.  Changing the law to cover such practices will improve women’s chances of proving indirect discrimination where an employer is applying a discriminatory and unjustifiable practice.  However, this will not, we judge, substantially increase burdens or uncertainty for large numbers of employers.

 Two options were considered for legislation.

(i)  Include “practice” – the consultation document stated that the implementation of the directive could perhaps be achieved by simply inserting the word “practice” into the SDA. This was to ensure that the requirement of an absolute bar would not longer prevent individuals from claiming indirect discrimination when a mere practice had been applied.  Consultees expressed a preference for using wording closer to the original in the directive “ provision, criterion or practice” and we therefore propose using these words to ensure that the Directive is fully implemented.

(ii) Clearly separate the approaches to indirect definition to reflect that the Directive only covers employment and vocational training and does not extend to goods, facilities and services.  Without primary legislation, we are unable to harmonise the two definitions.  The simplest way to achieve this by way of regulation is to separate the approach to discrimination in section 1 of the SDA and introduce a new subsection which will only apply to those matters which can be covered by the Directive.

3           Issues of Equity or Fairness – The current legal loophole, where employers are sometimes able to deliberately discriminate in practice as long as there is no absolute and visible rule, is clearly unfair.  These regulations will eliminate that unfairness.  Perhaps less obvious, but equally unfair, are some of the business practices which have no objective justification, but which can stand in the way of recruitment, promotion, and progression for women.  An employer will still be able to prefer for promotion those employees who have worked in an overseas office of its business (which women are less likely to do) if it can show that the preference for this experience is objectively justifiable.  However, where such practices are applied so as to disproportionally affect one sex more than the other then they will be  indirectly discriminatory  if they are not objectively justifiable and they will be liable to challenge.

4.                  Benefits

a.      Identify the benefits – this change will close a loophole in the law which allows wily employers to deliberately discriminate on grounds of sex, and allows complacent employers to continue unchallenged with business practices which may be disadvantaging women.

b.      Quantify and value – there is an obvious value in closing this loophole in the law for women (as the sex most often discriminated against) but there is also a benefit for employers in testing their business practices, and satisfying themselves that they are recruiting and promoting the best person for the job, rather than applying irrelevant or outdated criteria.  For individuals there are potential benefits from compensation and settlement payments: it is estimated that they will receive a total sum of £304000.[3]

5.                       Compliance costs for Businesses, Charities and Voluntary Organisations

a.      Business sectors affected - all those who employ staff.  Charities and voluntary organisations will only be covered in respect of salaried staff, volunteers are not considered to be “workers” in EC legislation.

b.      Compliance costs for a “typical” business – there is no cost to businesses who are not applying discriminatory business practices.  There are likely to be some one-off costs in testing existing business practices, and either justifying these or amending them.  It expected that most such testing will be done without recourse to an employment Tribunal, but there may in the short term be some Tribunal cases establishing the boundaries of the new law. 

c.      Total Compliance Costs – In 1999/2000 there were 3809 Sex Discrimination Employment Tribunal cases disposed of.  If we assume that the number of Tribunal cases will increase by 5%, then this will increase the compliance cost to business by £584000[4].

6.      Consultation with Small Business : “The Litmus test” – respondents to the consultation included

·         Forum of Private Business – (25,000 member businesses, averaging seven employees each)  agreed with all our proposals.

·         Small Business Service – made no comment on this section of the consultation document.

·         Federation of Small Businesses – objected to the shifting of the burden of proof in principle but raised no specific objection to our proposed form of implementation

7.      Identify any other costs – The administrative cost to government is estimated to be £106,000[5]

8.      Results of Consultations – the consultation suggested that we might implement by simply including the word “practice” in the SDA.  A number of commentators did not fully grasp how this might work, and those who did argued that it was unnecessarily complex.  We have taken notice of this advice, and now propose to provide two, clearly distinguished, definitions of indirect discrimination, one for the employment and one for the goods and services parts of the SDA.  We also now propose, in line with the preferences expressed by consultees, to stick more closely to the original wording of the Directive.  This wording is also closer to that agreed for the European Race and Framework Employment Directives.

9.      Summary and recommendations – we recommend that the second option for implementation be pursued.  It involves a bigger change to the wording in the SDA, but it is much clearer and easier to operate for the lay person.  There is no difference in the legal effects of the two options.

10.  Enforcement, Sanctions, Monitoring and Review. – the primary route for enforcement of sex equality legislation is by the individual, perhaps supported by their trade union or the Equal Opportunities Commission, through the Employment Tribunal system.  Monitoring will be undertaken by the Employment Tribunals Service to see if the number of applicants succeeding in Tribunal cases rises after this measure is implemented, though it will not be possible for the effect of this measure to be separated from the effect of other measures (i.e. the new method of shifting the burden of proof) implemented at the same time.

ANNEX

Legal costs, costs of staff time and costs of payment to applicants.

The Employment Tribunals Service Data 2000[6] showed the outcome of sex discrimination employment Tribunal cases disposed of in 1999/2000 was as follows:

·         1504 (39%) were (ACAS conciliated) settlements.

·         1348 (35%) were withdrawn

·         233 (6%) were successful at Tribunal (i.e. the outcome is in favour of the employee)

·         542 (14%) were dismissed at the hearing (i.e. the outcome is in favour of the employer)

·         9 (4%) were dismissed/disposed of for other reasons

There was a total of 3809 Sex Discrimination Employment Tribunal Cases disposed of in 1999/2000. If we assume that changing the definition of indirect discrimination will increase the number of Tribunal cases by 5% and posit that the distribution of outcomes remains the same then the outcomes of the increase in Tribunal cases would be distributed as follows:

·         75 would be ACAS conciliated settlements

·         67 would be withdrawn

·         12 would be successful at Tribunal

·         27 would be dismissed at the hearing

·         182 would be dismissed/disposed of for other reasons.

Compliance and non compliance costs

We have assumed, as is the usual practice, that where an employer successfully defends a complaint to a Tribunal or where the case is withdrawn, or dismissed for other reasons, there will be compliance costs.  However, where a claim is lost, the employer has obviously not complied, so the costs are not included.  Below, we distinguish between compliance and non- compliance costs.

Legal costs incurred by employers

1. If we look at the legal costs incurred for different case outcomes[7], (N.B. this is for all cases as there is no separate data for discrimination cases), the mean cost for a settled case is £563.4, the mean cost for a withdrawn case is £806.1, the mean cost for a case which goes to Tribunal and is upheld is £747.4, for a case which is dismissed at Tribunal, £1502.8 and the mean cost for a dismissed / disposed of case is £769.8. 

2. Using what we know about the pattern of outcomes, the costs to employers for the increased number of sex discrimination cases will be £42000 for settled cases, £ 54000 for withdrawn cases, £9000 for cases which are upheld, £41000 for cases which are dismissed at Tribunal and £7000 for cases which are dismissed/disposed of. The legal costs incurred as compliance costs are therefore £144000.

Staff time costs

1.      We have data from the DTI survey on time spent on cases by staff.  We can estimate the total time by applying the pattern of outcomes for discrimination cases to the data on time spent on case by case outcome (N.B. this is for all cases as there is no separate data for Discrimination cases).  The mean amount of time spent by Managers is:

·         settled cases 24.8 hours

·         withdrawn cases 26.1 hours

·         cases which go to Tribunal and the outcome is in favour of the applicant 38.1 hours

·         cases which go to Tribunal and the outcome is in favour of the employer 47.1 hours

·         dismissed / disposed of cases 30 hours

2.      If we apply the assumed pattern of case outcomes to this, it would mean that managers would spend a total of 5600 hours on these cases (1800 hours on settled cases, 1700 on withdrawn cases, 1300 on cases which are dismissed at Tribunal, 500 on cases upheld at Tribunal and 300 on dismissed / disposed of cases).

3.      For other staff, the amount of time spent is:

·         settled cases 8 hours

·         withdrawn cases 10.5 hours

·         cases which go to Tribunal and the outcome is in favour of the applicant 15.7 hours

·         cases which go to Tribunal and the outcome is in favour of the employer 22.6 hours

·         dismissed / disposed of cases 12.6 hours

4.      If we apply the assumed pattern of case outcomes to this, it would mean that other staff would spend a total of 2200 hours on these cases (600 hours on settled cases, 700 on withdrawn cases, 600 on cases which are dismissed at Tribunal, 200 upheld at Tribunal and 100 on dismissed / disposed of cases).

5.      To calculate the cost of these staff hours to businesses, we assume the hourly pay rate of managers to be £30 and for other staff, £15, and apply the assumed pattern of case outcomes.

This means the time cost incurred as compliance costs is £185,000 

Compensation payments awarded at Tribunal hearings

The median award in a sex discrimination case, £4,115[8]. Earlier we made the assumption that in 6% of cases the Tribunal will find in favour of the applicant, this would result in total compensation payouts of £49,000. Note that while these represent benefits to individuals, they are not considered to be compliance costs because the companies have not complied with the legislation.

Payments in settled cases

Employers and applicants can jointly decide to settle cases prior to the Tribunal hearing.  This means that the outcome of the case is not in the public domain and avoids the employer incurring the costs of preparing for, and attending a hearing.  We have data on such settlements from the DTI survey and the mean payment (where a payment is made) is around £3,400.  In total, the payments in settled cases would equal £255,000

Total costs

The total compliance costs to employers will therefore be: £144,000 for legal costs, £185,000 on staff time costs and £255, 000 in payments on settled cases – in all  £584,000.

Total benefits

Individuals benefit from compensation payments from Tribunals and payments from settled cases.   They will receive a total sum of £304,000.

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