How should employee share schemes deal with employees who leave due to retirement?

Some employee share schemes define "good" and "bad" leavers by reference to retirement. An employee who, for example, voluntarily resigns or is dismissed for capability is classified as a "bad leaver", which results in less favourable share scheme provisions on termination, while retirees are normally seen as "good leavers" and entitled to more beneficial terms under the scheme rules. With the abolition of the default retirement age, it is more difficult to distinguish between those employees who resign to work for a competitor, for example, and those whose resignation is in effect a retirement.

Employers should review the share scheme rules to determine whether or not the company may exercise discretion in classifying those who resign for retirement as "good leavers". If no discretion has been reserved, the employer should seek to amend the terms of the scheme to allow this. Alternatively, the scheme could be amended to state that, where an employee resigns due to retirement, they will be treated as a "good leaver".

An employer will be able to retain a compulsory retirement age only if this is objectively justified. If the share scheme includes provisions relating to the company or normal retirement age, the employer may need to remove or amend those terms or ensure that they can be objectively justified.