Cases in point: guidance on retiring employees

Recent cases reveal the complexity of potential discrimination in the area of age, says John Charlton.

Now in its sixth year, Seldon v Clarkson Wright & Jakes (CW&J), the case of former law firm senior partner Leslie Seldon, has shone some light on the grounds that employers can use to retire employees. It’s not over yet – there is at least one more round for the persistent Seldon to glove-up for.

His case against the Kent law firm of CW&J started in March 2007 when Seldon alleged that his December 2006 dismissal was an act of direct age discrimination under the Employment Equality (Age) Regulations 2006, which have since been repealed but largely re-enacted under the Equality Act 2010. They are, in effect, the UK transposition of an EU Directive on equal treatment in employment and occupation.

The Directive (2000/78/EC) says that direct discrimination occurs where one person is treated less favourably than another would be in a similar situation. As regards age discrimination, the Directive permits member states to allow different treatment on grounds of age if they can be objectively and reasonably justified by a legitimate aim. This includes employment policy, labour market and vocational training objectives. But the means of achieving such an aim must be appropriate and necessary.

Legitimate planning?

In April 2012, after hearings at the employment tribunal and the Employment Appeal Tribunal, the Supreme Court backed their rulings that CW&J’s retirement policy pursued legitimate aims including those of providing opportunities for younger staff, facilitating workforce planning and limiting the need to sack underperforming partners thus contributing to a congenial workplace.

However, the Court remitted to the employment tribunal the issue of whether or not having a mandatory retirement age of 65 is a proportionate means of achieving CW&J’s “legitimate” aims.

Hogan Lovells’ senior associate Kate Barker says that deciding on the proportionality of retiring Seldon at 65 will be “challenging” for the tribunal, which will “need to consider a significant body of European case law on this topic”. She says that when Seldon retired in 2006 the retirement age was 65, and thus perhaps proportionate, “but this may not mean that a retirement age of 65 would be proportionate today”.

Charles Russell associate Gagandeep Prasad adds: “Assessing proportionality is not an exact process. Employers will need to show they have considered carefully why the age they have selected is suitable.”

Nevertheless, with the scrapping of the default retirement age leaving employers unsure as to when and why they can retire older workers, the Court’s ruling gives some guidance. “It’s a very pragmatic judgment,” comments Caroline Carter, partner at Ashurst. “It does make clear that if you have succession planning and there is a real business need for it then that is a legitimate reason … for compelling retirement at a particular age.”

quotemarksEmployers will need to show they have considered carefully why the age they have selected is suitable.”

Charles Russell,
Gagandeep Prasad

Prasad says: “It’s a useful judgment in that it sets out some guiding principles in relation to what will be a ‘legitimate’ aim. The Court found that intergenerational fairness and preserving the dignity of workers were two social policy objectives.”

These applied to CW&J’s aims of retaining younger staff, workplace planning and creating a congenial atmosphere at work.

Prasad says the latest ruling provides “helpful guidance for those who want to retain a retirement age” but they will “need to show why it is necessary in their business in relation to their aims”. She adds that the ruling has provided a framework for employers but “not necessarily made it easier to justify a retirement age”.

Barker says the ruling “provides clarification” of what amounts to a legitimate aim in justifying a retirement age under age discrimination legislation. These are retaining younger staff, workforce planning and maintaining a congenial and supportive workplace culture by limiting performance management.

But she emphasises that employers citing such legitimate aims must show that retiring employees at a given age “is a proportionate means” of achieving one or more of those objectives. She explains: “This will involve a balancing exercise between the importance of the aims identified to the business and the discriminatory effect upon the employee concerned.

“Further guidance is needed from UK courts as to what age is likely to be proportionate in which circumstances.”

She says that European Court of Justice case law suggests that forced retirement at a particular age is more likely to be deemed proportionate if there is adequate pension provision for the employee concerned. Some employers may also be wondering if the Seldon ruling means they can have a standard retirement age across the board.

The bigger picture

Amanda Jones, partner at Maclay Murray & Spens warns against the standard age: “For example, a company that carries out lots of different functions would find it difficult to adopt a standard retirement age. You have to be very cautious about generalisations.”

However, Carter says she sees “no reason why employers can’t have an across-the-board retirement age based on [job] categories”. She acknowledges that this could be tricky, such as in situations where some employees are fitter and more capable than others doing similar jobs, and want to carry on working out of necessity.

Jones says that “it may be possible to set a retirement age for particular job functions”. She adds that employers must consider the “exact business needs” for setting a retirement age in the first place and why it should apply to a given age. “If a retirement age relates to one individual only it is more likely to be discriminatory.”

Age UK, which supported Seldon, believes the ruling means that employers will have to justify direct age discrimination on a case-by-case basis. In a statement, it says: “The ruling effectively raises the bar in terms of the evidence needed [to justify forced retirement] and makes it clear employers will have to justify discrimination in relation to each individual role.”

However, CBI head of employment policy Guy Bailey says: “A fixed retirement age remains necessary for some roles, in some workplaces. It provides a focal point for discussion about retirement plans, giving greater certainty to the employer and employee. It need not mean that all workers to whom it applies will retire at that age. Rather it is an opportunity to discuss whether and how a job can be adapted without having to instigate a performance management procedure that neither party wants.”

Finally, the ruling leading to more costly and time-consuming procedures and cases is “unlikely”, says Jones. As always, employers should follow sound practice in implementing policies to ensure that they don’t, says Jones, “disadvantage people with particular protected characteristics”.

Costs and discrimination

Other cases have concerned the issue of cost as a reason to justify age discrimination.

quotemarksA fixed retirement age remains necessary for some roles, in some workplaces. It provides a focal point for discussion about retirement plans.”

Guy Bailey,

For example, in HM Land Registry v Benson and others, the Employment Appeal Tribunal (EAT) considered whether or not the former had indirectly discriminated on grounds of age against five employees whom it turned down for early retirement and voluntary redundancy. The employer argued that retiring or laying off Benson and others would have exceeded its redundancy/retirement budget.

The EAT found that for HM Land Registry to seek to break even and impose a budget on the scheme was a legitimate aim even if it was indirectly discriminatory.

In March 2012, the Court of Appeal, in Woodcock v Cumbria Primary Care Trust, held that the dismissal of a redundant chief executive without proper consultation, so it could avoid paying him an enhanced pension, was not unlawful discrimination. This was based on the unusual facts of the case and the ruling does not give a green light to employers to lay off older staff to avoid retirement-related costs.

In 2010, the European Court of Justice ruled in a Danish case – Andersen v Region SydDanmark – that removing the right of a long-serving employee aged over 60 to a severance payment on the grounds that he was entitled to an occupational pension was direct age discrimination.

Meena Tostivin, senior professional development lawyer at Ashurst comments: “In the light of Woodcock and European case law, employers need to be wary of dismissing older employees or treating them to their detriment with the aim of avoiding incurring additional costs.”

Another Supreme Court decision

The Supreme Court recently heard an appeal from police backroom worker Terence Homer, who claimed that he had suffered indirect age discrimination as he had been prevented from advancement because of his age.

In the case of Homer v Chief Constable of West Yorkshire Police, the claimant could not apply for promotion to the top legal adviser grade at the Police National Legal Database as he did not have a law degree, the completion of which would have taken him past the age of 65. He claimed that this was indirect age discrimination.

The Court allowed Homer’s appeal and found that he was indirectly discriminated against, but remitted the case to the employment tribunal to reconsider the justification issue.

“In many ways it’s a surprising decision,” says Mills & Reeve professional support lawyer Charles Piggott, “because it shows the Supreme Court reaching a more ‘liberal’ interpretation of the age equality legislation than the EAT or the Court of Appeal.

“Given the close connection between retirement and age how could it not be at least potentially discriminatory to require a degree … for reaching a top salary grade when there was … evidence that older employees were less likely to have one?”

Piggott advises employers to think carefully about the academic conditions they impose for promotion or a higher salary grade and “to look at requirements of this nature in other contexts, for example entry-level recruitment”.

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