Default position
The government’s plan to scrap the default retirement age is likely to create a significant challenge for employers in the public and private sectors, writes Sarah James.
The coalition government has made a commitment to phase out the default retirement age (DRA) of 65 in its Programme for Government, with the BIS website explaining the reasoning behind the decision as “Not only are people living longer, but they are also working longer. The number of younger workers coming into the labour market is dropping. By 2020, almost a third of the workforce will be over the age of 50. With skills shortages and changing labour markets, it makes sense to utilise all available skills and experience, regardless of a person's age, and to encourage older workers to stay within the business”. This avoids mentioning an obvious point, that a major factor in the decision must be the near-crisis situation in many underfunded pension schemes.
The government proposes to abolish the DRA on 1 October 2011, with transitional arrangements beginning on 6 April 2011. Although evidence suggests that currently, more than 50% of employee requests to work after the age of 65 are granted, the timescale for employers to revisit their policies in this area is very tight.
If an employer gives notice of retirement after 6 April 2011, they will no longer rely on the DRA. This is because the minimum six months' notice would expire after 1 October 2011 and the short notice provisions allowing less than six months’ notice are going to be repealed. The employer will need to be able to justify objectively the retirement of the employee, if relying on its own normal retirement age, or will need to rely upon one of the other potentially fair reasons for dismissal set out in section 98 of the Employment Rights Act 1996, such as lack of capability by reason of ill-health or poor performance, or redundancy, which will of course bring the risk of potential unfair dismissal claims.
The announcement described above coincided with the publication of the Court of Appeal's judgment in Seldon v Clarkson Wright & Jakes and Secretary of State for Business Innovation and Skills [2010] EWCA Civ 89.
The Employment Equality (Age) Regulations 2006 (“Age Regulations”) prohibit discrimination on grounds of age in employment. Direct age discrimination can be objectively justified where the treatment is a proportionate means of achieving a legitimate aim. If the default retirement age is removed, employers will have to decide whether to implement a retirement age and, if so, identify an appropriate one. If operation of a retirement age is not to be unlawful discrimination on grounds of age, it will have to protect a legitimate aim, and be a proportionate means of achieving that legitimate aim, ie there must not be another way of doing things with a less discriminatory effect.
In Seldon, the Court of Appeal upheld a tribunal's decision that a rule requiring partners in a firm of solicitors to retire at 65 was justifiable. Unlike the current position for employees, there is no DRA for partners, and a requirement that partners retire at a certain age could be discriminatory in the absence of objective justification. Regulation 17 of the Age Regulations also provides that it is unlawful for a firm to discriminate against a partner in the way it affords them access to any benefits (or by failing to do so), by expelling them from the partnership or by subjecting them to any other detriment.Mr Seldon, a partner in Clarkson Wright and Jakes, was compulsorily retired on 31 December 2006, the end of the year in which he reached 65 (as provided for by the partnership deed). Mr Seldon wanted to continue working for the firm after his retirement. His request to do so in a self-employed capacity was rejected. After his retirement, he issued tribunal proceedings arguing that he had been directly discriminated against on grounds of age.
Dismissing the claim, the Tribunal identified two categories of legitimate aim (endorsed by the EAT and Court of Appeal):
- "Dead men's shoes" which covered both providing associates with the opportunity of partnership after a reasonable period, and enabling partnership and workforce planning with realistic expectations as to when vacancies would arise; and
- "Collegiality”: limiting the expulsion of partners through performance management and so contributing to a more congenial and supportive workplace.
As the Court of Appeal noted in this case, a single retirement age applied to an entire workforce will not necessarily be a proportionate means of achieving each of an employer's legitimate aims. It appears that employers will have to carry out careful research and provide an analysis of evidence to support both the rationale for imposing a cut-off point and the age at which that cut-off point will operate. A general assumption that performance will decline beyond the age of 65 will not be enough.
It also said that it is a legitimate aim to have a cut-off age after which individuals are required to retire to avoid forcing an assessment of a fall off in performance, so maintaining a confrontation-free workplace. This observation may be of wider importance when the default retirement age is scrapped, as in the absence of compulsory retirement, employers could face dismissing older employees on the basis of ill-health or poor performance, giving rise to the risk of unfair dismissal claims.
Sarah James is a lawyer in the employment team at Dickinson Dees (www.dickinsondees.com).
