Abolition of the default retirement age: employers' obligations

Elizabeth Stevens of Steeles (Law) LLP continues a series of articles on the abolition of the default retirement age with a look at how employers' obligations in relation to retirement will change as a result of the abolition. With the default retirement age will go the statutory retirement procedure. However, employers will still need to follow a fair procedure if they wish to retire an employee under an employer justified retirement age. 

Introduction

The default retirement age allows employers to force employees to retire at the age of 65 or over, provided that they follow a statutory procedure. The Government has confirmed its plans to abolish the default retirement age, from 1 October 2011. (See Abolition of the default retirement age: overview in this series for more details of the Government's proposals and the timetable for abolition. )

Employers that currently use the statutory retirement procedure to retire employees at or after the age of 65 will need to make significant changes to the way that they deal with employee retirement. Employers will no longer be able to force employees to retire, unless they can justify their own retirement age.

Employer justified retirement age

A limited number of employers already have in place their own contractual retirement age below the age of 65. Recent research by BIS and the Department for Work and Pensions (DWP) suggests that only 2% of employers have a compulsory retirement age of under 65, which may or may not be justified (Second survey of employers' policies, practices and preferences relating to age, 2010 (PDF format, 1.5M) (on the DWP website)). This is more likely to apply in sectors where the demands of the job require that employees have a high level of physical and/or mental fitness, such as the airline industry or, as suggested in the Acas guidance (Working without the default retirement age (PDF format, 343K) (on the Acas website)), the emergency services. For this to be lawful and not discriminatory on the ground of age, the employer must be able to show that the retirement age is objectively justified.

Once the default retirement age is abolished, more employers may want to consider introducing their own compulsory retirement age. This would have to be objectively justified for any retirement age, whether it is at, above or below 65. The Government refers to this as an "employer justified retirement age" in its consultation documentation. Employers that want to introduce their own compulsory retirement age will need to give careful consideration to whether or not they will be able to justify it, as it will not be easy to establish objective justification in this context.

To establish objective justification, an employer must be able to show that it has a legitimate aim and that the retirement age selected is a proportionate means of achieving that aim. To be proportionate, the discriminatory effect of the retirement age should be significantly outweighed by the importance and benefits of the legitimate aim and the employer must consider whether or not there are alternative, less discriminatory methods of achieving that aim.

The Acas guide includes guidance on employer justified retirement ages and suggests preserving health and safety as a legitimate aim. It also gives the example of workforce planning as another potentially legitimate aim, meaning the need for the business to recruit, retain and provide promotion opportunities and effectively manage succession. This might be easier for some employers to establish as a legitimate aim, compared with health and safety. However, the guidance makes it clear that, to satisfy the test of objective justification, it is necessary for employers to show clear evidence rather than unsupported assertions that the retirement age is justified.

The leading case in the context of retirement and age discrimination concerned the retirement of a partner in a firm of solicitors (Seldon v Clarkson Wright and Jakes and Secretary of State for Business, Innovation and Skills [2010] IRLR 865 CA). The case looked at whether or not the firm could justify a retirement age of 65 for partners of the firm. Partners are not subject to the default retirement age, as this applies only to employees. The Court of Appeal held that, as well as workforce planning and the retention of staff, another legitimate aim for enforcing a compulsory retirement age could be that of avoiding the forced assessment of an individual's falling off in performance. The Court of Appeal recognised that, if an individual's performance was beginning to decline, the ability to retire that individual rather than tackling his or her performance issues contributed to a much more "collegiate" atmosphere within the firm.

The Court also made a number of other important observations on the issue of justification in relation to age discrimination, including the following points:

  • The issue of justification has to be considered at the date the rule or policy is applied, not when it was adopted.
  • The relative bargaining power of the parties is relevant to the question of justification. (In this case the Court accepted that the fact that the parties had all signed up to the partnership agreement containing the retirement age was a relevant factor; in an employment context the unequal bargaining power is less likely to count in favour of justification.)
  • A compulsory retirement age is not disproportionate simply because a higher age would be less discriminatory, otherwise it would be impossible to justify any retirement age. Interestingly, the Court held that the choice of 65 for partners was supported by the fact that the default retirement age for employees is 65.

The partner in this case is appealing the decision to the Supreme Court, which may provide further guidance on the issue of justification in the context of retirement.

The statutory procedure, which employers must currently follow to bring about compulsory retirements at, above or below the default retirement age of 65, is also being abolished. Where an employer opts to have a compulsory retirement age, it will still be necessary for it to follow a fair procedure when terminating employment on the ground of retirement. According to the Acas guidance, this will mean giving the employee adequate notice of the retirement and, "if circumstances permit", considering any request by the employee to stay "as an exception to the general policy". The guidance does not clarify the circumstances in which it might be necessary to consider a request to stay, but makes it clear that it is important for employers to ensure consistency of treatment between employees who make a request to stay. According to the Acas guide, a retirement dismissal where the employer has an employer justified retirement age will be potentially fair for "some other substantial reason" under s.98 of the Employment Rights Act 1996.

Employers without a retirement age

In the absence of their own objectively justified compulsory retirement age, employers seeking to dismiss an older worker who does not want to retire voluntarily will have to rely on one of the five potentially fair reasons for dismissal set out in s.98 of the Employment Rights Act 1996 (namely conduct, capability, redundancy, statutory ban or some other substantial reason). If an employer is concerned about an employee's performance, it will be necessary for it to follow a performance management procedure, issuing the individual with warnings and giving him or her the opportunity to improve, before it considers dismissal (with notice) on capability grounds.

An employee who wants to retire voluntarily, at any age, will be required to give the employer the necessary period of contractual or statutory notice, in the same way as for a normal resignation.

Workplace discussions

Many employers will have concerns about how to broach the topic of retirement with employees, without risking an allegation of age discrimination. However, it is important for reasons of workforce and succession planning for them to have some idea of employees' intentions in relation to retirement.

The Acas guidance suggests that holding "workplace discussions" with all employees will be a good method of raising the issue of retirement with older employees. Acas suggests that a workplace discussion could be included as part of a normal appraisal or performance review meeting, at which the employee's performance can be discussed, future targets set, developmental or training needs identified and the employee's "aims and aspirations" discussed.

The guidance recommends asking open questions to avoid suggestions of age discrimination. It suggests asking employees (of all ages) about their plans and aims for the short, medium and long term, to organise training and development and to make appropriate succession plans.

Employers should keep a record of workplace discussions and, as a matter of good practice, provide a copy for the employee.

Next week's topic of the week article will be a checklist to help employers prepare for the abolition of the default retirement age and will be published on 21 February.

Elizabeth Stevens is a professional support lawyer in the employment team at Steeles (Law) LLP (estevens@steeleslaw.co.uk).

Further information on Steeles (Law) LLP can be accessed at www.steeleslaw.co.uk.