Compulsory retirement: making a come back?

Compulsory retirement: making a come back?

Published:

Author: Karen Fletcher

The last day on which employers could rely on the default retirement provisions was 5 October 2012, but could compulsory retirement make a re-appearance?

Many employers have been living without a default retirement age (which was 65 for most employees) since April 2011. However, transitional arrangements meant that 5 October 2012 was theoretically the very last date it could be relied upon.

While the UK's law has been moving rapidly away from forced retirement, some recent well reported ECJ decisions, mean we have been approached by employers asking whether they can reintroduce compulsory retirement ages? This article looks at the factors employers will need to consider before they do.

Background

The default retirement age ("DRA") was abolished on 5 April 2011. Any notice of retirement (which could be a maximum of 12 months notice) had to be served on an employee on or before that date.

Under the relevant regulations, an employee could request to extend this notice provided the extension was for no longer than 6 months and the employee retired before 5 October 2012.

Age Discrimination

Now that 5 October 2012 has passed, any compulsory retirement age imposed by an employer will constitute direct age discrimination under the Equality Act 2010, unless an employer can show that it is objectively justified.

To establish objective justification, an employer will need to show that:

  1. a "legitimate aim" is being pursued; and
  2. the means used to pursue the legitimate aim are "proportionate".

Note however that employees may choose to retire voluntarily at any age and will be regarded at law as having resigned. It is also important to understand that this does not affect the definition of "retirement" for pension purposes.

Legitimate Aim

Given recent ECJ cases, for example, Seldon v Clarkson Wright and Jakes ("Seldon"), it is clear that it is relatively easy to establish a legitimate aim (provided that the legitimate aim in respect of direct discrimination is in the public interest and consistent with the social policy aims of the member state).

Two categories of legitimate objectives were identified in Seldon:

1. Inter-generational fairness

This included:

  • facilitating access to employment by young people;
  • enabling older people to remain in the workforce;
  • sharing limiting opportunities to work in a particular profession between generations (this encompasses staff retention and workforce planning); and
  • promoting diversity.

2. Dignity

To preserve the dignity of older employees by avoiding the need to dismiss them on grounds of incapacity or poor performance.

Note that Seldon emphasised that the identified legitimate aims must be in 'the minds of those who adopted the measure in the first place'.

Therefore, any employer wishing to impose a compulsory retirement age will need to identify the legitimate aim(s) they are relying upon at the time they introduce the compulsory retirement age and ensure that these aims are recorded in writing.

Proportionate Means

A compulsory retirement age must be a "proportionate" means of achieving a legitimate aim and go no further than is necessary in achieving it. Herein lies the difficulty for employers who wish to reintroduce a default retirement age as this is a more difficult test to satisfy.

In Hörnfeldt v Posten Meddelande the ECJ upheld a DRA of 67 for Swedish postal workers. The DRA was held to be a proportionate way of achieving the legitimate aims of increasing the pension of workers, freeing up posts for younger workers and avoiding humiliation for elder workers. However, unlike the UK, Swedish law provides for employees to be retired at the end of the month in which they reach the age of 67.

The UK appears to have adopted a more robust approach. This was illustrated in Hampton v Lord Chancellor and Ministry of Justice where a retirement age of 65 for recorders was not a proportionate means of ensuring a reasonable flow of new appointments.

Significantly, employers cannot rely on a general presumption that performance declines with age (Baker v National Air Traffic Services Ltd). Employers will therefore need to provide evidence showing a correlation between the compulsory retirement age and the legitimate aim. This could result in varying compulsory retirement ages depending on different sectors and job roles.

In addition employers must consider whether there is an alternative, less discriminatory way of achieving the same result? For example, would a requirement to pass an annual aptitude test after a certain age be a less discriminatory way of achieving the aim than automatic dismissal at that age?

Real and robust evidence is key in establishing that the compulsory retirement age chosen is a proportionate means of achieving a legitimate aim. In other words, employers who wish to impose a retirement age in the future need to start gathering statistical evidence to show, for example, that performance does, in fact, decline at the age chosen or that the risk to the health and safety of employees increases after the chosen age.

What should you do?

If you are considering introducing a compulsory retirement age you need to proceed with caution. You should:

  • clearly set out your justification in a retirement policy;
  • consider alternative ways to meet these justifications. For example, using fitness or competency tests as a retirement criteria, or introducing phased retirement through flexible working;
  • start collecting evidence that the selected age is justified, for example statistics proving that job performance begins to decrease after the selected age/the health and safety risk increases or that there actually is a problem with recruitment or retention of younger workers;
  • consider how the proposed retirement age for employment dovetails with employees' pension entitlements (both occupational and State), for example, any proposed retirement age below the age at which employees can start to draw their pensions is unlikely to be objectively justified; and
  • consider different retirement ages, i.e. higher than 65 and varying these for different roles.

Comment

It is unlikely that in all but the most extreme or unusual of circumstances an employer will be able to justify introducing a compulsory retirement age at the moment. However, as demographics, the economy and society changes the position may be subject to change: employers need to keep the evidence under review.

Cases

Seldon v Clarkson Wright and Jakes [2012] ICR 716

Hörnfeldt v Posten Meddelande AB C-141/11

Hampton v Lord Chancellor and Ministry of Justice ET/2300835/07

Baker v National Air Traffic Services Ltd ET/2203501/2007