New guidance has been issued by the Charity Commission which sets out its views on the application of the new charities exception in the Equality Act and the circumstances in which a charity may restrict its benefits to a group defined by reference to a protected characteristic.

The Equality Act 2010 brings previous equalities legislation together into one new act, making it unlawful to discriminate against anyone because of a protected characteristic (age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex, sexual orientation) in a wide range of areas including employment and the provision of services. Though for the most part it was a consolidating piece of legislation, it made significant changes to the way in which charities can restrict their beneficiary class.

Previously a charitable organisation benefited from a series of wider exceptions which provided that so long as its constitution set out the class of people which it could benefit, and that class was not defined by reference to skin colour, then any consequent discrimination would not be unlawful. The Equality Act 2010 has narrowed the scope of that exception. Now, any restriction as to who may benefit by reference to a group who share a protected characteristic, even if it is set out in the governing documents, must also be justified.

The Charity Commission produced summary guidance in September 2010 which did little more than summarise the charities exception, and promised to provide fuller and more detailed guidance in the early part of this year to assist charity trustees to ensure that their charities were complying with the new legislation. This more detailed guidance was published on 31 August.

Whilst it is certainly fuller, and contains one or two further illustrative examples and answers to common questions that have been raised, it will leave many organisations, particularly those whose beneficiary class is restricted by a protected characteristic, needing to take further specialist advice to ensure that they are compliant with the law. Launching the new guidance, Jane Hobson, head of policy at the Charity Commission said: "Trustees must remember that the general principle of fair and equal treatment for all applies to charities. The law recognises that some charities are set up to help particular groups in society because of disadvantage or for clear social objectives and that is why it specifically allows charities in these circumstances to depart from the principle. Trustees need to familiarise themselves with this guidance to ensure that their charity is working within the law."

The new guidance recommends that all charities check that they comply with the Equality Act 2010 and suggests that they take the following three step approach:

• Charities should review their governing document and identify whether it restricts those who may benefit on the grounds of a protected characteristic, eg the visually impaired, followers of a particular religion, students from a particular country.
• If there is a restriction, they must establish whether the restriction can be justified using either the charities exception or another permitted exception by the act. If it can, no further action will be needed.
• If none of the exceptions in the act applies, then the charity may not be complying with the law and its charitable purposes may no longer be capable of being carried out for the public benefit. In this case, a charity must apply to change its charitable purposes.

The guidance also makes clear that this review needs to be carried out on an ongoing basis because what may be justified under the charities exception this year, may no longer apply if circumstances change. This must therefore be an ongoing process of review and perhaps now ought to be built into a charity's risk register.

Though the guidance make reference to the other exceptions which may apply, it focuses understandably on the charities exception. In that regard, though it contains a few new examples, it does not really provide much more by way of helpful guidance.

The charities exception allows a charity to limit its benefits to people who share a protected characteristic if its governing document allows people who share a protected characteristic to benefit and the charity meets either Test A or Test B.

Test A (the disadvantage test) is met if a charity's aim is to tackle a particular disadvantage faced by people who share a protected characteristic. The example is given in the guidance of a charity which works to relieve unemployment among people of a particular ethnic origin. In this case, the restriction is only lawful if unemployment among people of that group is particularly high when compared to that for the general population.

Test B (legitimate aim) is met if the restriction can be justified as being a fair, balanced and reasonably necessary way of carrying out a legitimate aim.

The commission's guidance makes it clear that access to funding would not justify a restriction. So where a philanthropist will only donate funds for use for a particular group which shares a protected characteristic and for no other people, the access to those funds is not itself sufficient to meet this test.

The guidance contains two examples of how Test B might be used where Test A could not be satisfied, but what will comprise a legitimate aim in the context of charities remains rather uncertain. No doubt this will be given some further consideration by the courts in the years to come.

Perhaps the most useful parts of the new guidance are the small clarifications that it makes in response to queries raised in the consultation:

Test A cannot be used by charities that have general charitable purposes but restrict the benefits to people with a shared protected characteristic. This is because it would not be clear what particular disadvantage was being tackled and it is unlikely that the group will face disadvantage in relation to every possible charitable purpose.

Charities cannot apply restricted funds, ie funds given for a specific purpose, for people who share a protected characteristic unless the restriction is set out in the governing document and can also be justified. So an educational charity which awards scholarships cannot accept a restricted fund from a donor who wishes to help children from a particular country, unless the trustees can meet Test A or Test B. Fundraisers will need to take note.

There was a question as to whether the making of grants was the provision of a service which would be covered by the act. The commission makes it clear that in its view, grants are covered by the act.

The commission also make it clear that in certain circumstances, facilities established to provide services to people of a certain religion or belief, such as a care home, may qualify as a religion or belief organisation, and there will therefore be no need to rely on the charities exception at all.

Charities will need to review the guidance and take steps to ensure that they are not unlawfully discriminating in their charitable endeavour.