What's your age discrimination risk?

Add employees’ ages to the growing list of compliance concerns that need to be addressed by private equity firms with US operations. 

Reforms to regulations implementing the 1967 Age Discrimination in Employment Act (which went into effect in late April) call for employers to think more in advance about how their practices might be affecting different age groups. The law now calls for employers (including GPs) to be more aware of what impact, say, a round of bonuses or hiring strategy will have on older workers compared to young. And more importantly, to document what actions had been taken to mitigate any discrimination against the older individuals.

To illustrate what needs to be done, consider a fixed figure bonus payout to staff – one that is probably a higher percentage of a junior employee’s base salary compared to a more senior employee. That may not be easy to swallow for the older staff, meaning it needs to be shown that other reasonable factors were at play in the decision or risk an age discrimination lawsuit. Retaining junior talent could be one such reasonable factor, says Stephen Erf, a labour relations attorney at McDermott Will & Emery. Unlike their junior counterparts, senior employees may have a portion of their salary deferred, making it less likely they abruptly leave the firm. A fixed figure bonus therefore can be a tool to keep the younger staff around for another year.

Unfortunately having to study the impact of a bonus round means higher administrative costs for most GPs captured by the law. We would say all, but many firms are unaware of the reforms, according to legal sources, and so will go about their business as usual except now with increased litigation exposure.

What’s more is the law applies just as strongly at the portfolio company level: are portfolio company executives aware of the reformed age discrimination rules as well? If you make a representation that they are, perhaps say to a buyer at the time of exit, it should certainly be checked that they are.

Both in the US and abroad the reforms highlight just how regulated the industry has become. PE Manager will explore that very topic in our July edition, for age is but one of many new compliance duties that have been recently added to the private equity rulebook.