Employer justified retirement age: putting the case forward

Employers that wish to maintain a compulsory retirement age will now have to justify it with a legitimate business case, writes Sandra Wallace.

Recent years have brought huge changes in the employment law arena; and the ending of the default retirement age (DRA) in April 2011 has been notable as one of the most important and talked-about employment law reforms for some time. The last possible date for retirement under the DRA is 2 October 2012.

Before April 2011, employers were legally entitled to force someone to retire at the age of 65 without fear of claims for age discrimination or unfair dismissal. Now, unless an employer can justify a compulsory retirement age, it has to forget the concept of automatic “retirement” and instead consider the termination of employment of anyone aged 65 or over in exactly the same way as any other employee. This means terminating employment only if there is a potentially fair reason, such as conduct or capability. Importantly, it also means carrying out a fair procedure.

Employers that wish to continue implementing a compulsory retirement age must be able to justify it with strong evidence of the legitimate business aims that such an age supports. Further, they must be able to show that the age chosen is proportionate; in other words, that the business’s aims could not have been achieved in a less discriminatory way. These are difficult hurdles to overcome.

Timing of redundancy notice

In recent months, however, there have been a couple of cases that should assist employers to navigate their new obligations and to understand whether or not any potentially age discriminatory treatment, including a compulsory retirement age, is likely to be considered by the courts to be justified.

quotemarksEmployers that wish to continue implementing a compulsory retirement age must be able to justify it with strong evidence of the legitimate business aims.”

In March 2012, the Court of Appeal handed down judgment in the case of Woodcock v Cumbria Primary Care Trust. Mr Woodcock was employed as chief executive of North Cumbria Primary Care Trust (PCT) but was required to apply for a new role. The PCT undertook extensive discussions with him in relation to alternative employment. More than a year later, he was told that his job was at risk of redundancy. However, before the first formal consultation meeting, the PCT issued 12 months’ notice of dismissal. The notice was timed to ensure that it would be given before Mr Woodcock’s 49th birthday and therefore expire before he turned 50. The reason for this was that, if his employment terminated after the age of 50, he would be entitled to an enhanced early retirement pension which would cost significantly more (more than £500,000). Mr Woodcock issued proceedings for age discrimination.

The Court of Appeal found that the PCT’s decision to issue notice of termination of employment in order that it would expire before Mr Woodcock became entitled to enhanced early retirement was discriminatory on the ground of age, but was justified as a proportionate means of achieving a legitimate aim. In so finding, the court came close to stating that cost alone can justify some types of discrimination. However, it stopped short of endorsing this approach and therefore guaranteed the survival of the “costs-plus” approach established in previous case law.

In April 2012, the Supreme Court handed down judgment in two other cases dealing with age discrimination: Seldon v Clarkson, Wright & Jakes and Homer v Chief Constable of West Yorkshire Police.

Legitimate objectives

In the Seldon case, the Supreme Court held that ­employers have the flexibility to choose which objectives to pursue in setting a compulsory retirement age provided that those objectives count as legitimate objectives of a public interest nature. It said that the European Court of Justice had identified two such legitimate objectives: inter-generational fairness (such as facilitating access to employment for younger workers and sharing opportunities for work) and dignity (avoiding the need to dismiss older workers on the grounds of incapacity or performance). The Supreme Court held that aims such as collegiality and filling “dead men’s shoes” were legitimate aims because they were directly related to the social policy aims of inter-generational fairness and dignity.

quotemarksRecent decisions show just how difficult it is likely to be for employers to justify a compulsory retirement age.”

Importantly, however, the issue of whether or not the ­retirement age chosen in Seldon was a proportionate means of achieving the aims was referred back to the tribunal and a decision is still awaited. However, the tribunal will have to consider the issues in the context of the law as it was in 2006, when the DRA was still in force for employees. A court having to consider a claim now, after the repeal of the DRA, may well reach a different conclusion.

In the Homer case, the Supreme Court found that the range of aims that can justify indirect discrimination is wider than the aims that can justify direct age discrimination and is not limited to social policy objectives. It said that part of the assessment of whether or not the discriminatory criterion could be justified involved comparison of the impact on the affected group with the importance of the aim to the employer (essentially a balancing exercise).

Review of default retirement age

These decisions show just how difficult it is likely to be for employers to justify a compulsory retirement age; although establishing proof of the legitimate aims may not be insurmountable, showing that the retirement age chosen is proportionate may well be. Employers that continue down this route are therefore adopting a risky strategy and may face potentially costly claims.

Notwithstanding this radical change to employment law, just 18 months down the line the Government has already indicated that it intends to review its decision to end the DRA in 2016.

In a few years, therefore, we may see an about-turn; for now, however, employers ought to give careful thought to their retirement strategies.

Acas guidance on employer justified retirement age

Employers that wish to use an employer justified retirement age (EJRA) need to consider the matter carefully. They will have to ensure that the retirement age meets a legitimate aim, for instance workforce planning (the need for business to recruit, retain and provide promotion opportunities and effectively manage succession) or the health and safety of individual employees, their colleagues and the public.

As well as establishing a legitimate aim, an employer will also need to demonstrate that the compulsory retirement age is a proportionate means of achieving that aim.

The test of objective justification is not an easy one to pass and it will be necessary to provide evidence if challenged; assertions alone will not be enough. When looking to establish an EJRA, it can be helpful to first set out clearly on paper the reason why you wish to do so.

Then ask yourself whether or not you have good evidence to support this reason and then finally consider if there is an alternative, less- or non-discriminatory way of achieving the same result. Throughout, you should always remember that you need to show “objective” justification not “subjective” justification.

Having established an EJRA, any retirement of an employee as a result will be considered as a dismissal for some other substantial reason. Employers should also follow a fair procedure in retiring people at the compulsory retirement age.

You should give the employee adequate notice of impending retirement and, if circumstances permit, consider any request by an employee to stay beyond the compulsory retirement age as an exception to the general policy – although it would be important in such circumstances to ensure consistency of treatment between employees who might request to stay on.

From “Working without the default retirement age”

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