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An employer’s guide to retirement and age discrimination law

Until recently, retiring an employee was a simple procedure for companies. But legislation introduced in 2011 made this process a minefield. However, by being vigilant, employers should be able to negotiate their way around any potentially explosive areas of the law.

Before 6 April 2011, an employer was able to dismiss someone fairly as soon as they reached ‘normal retirement age’; for most people, this was 65.  Only retirement ages that fell below 65 needed to be justified under the old regime, and an unfair dismissal claim would fail if the normal retirement age had been reached and the employer had followed correct procedure.

Employment equality regulations

On 6 April 2011, however, the Employment Equality (Repeal of Retirement Age Provisions) Regulations came into force, which repealed the national normal retirement age.  Since then, it has been more difficult for an employer to ‘force’ retirement or set a blanket retirement age for employees. A dismissal for ‘retirement’ would now fall under the potentially fair reason for dismissal of “some other substantial reason”, providing that the employer is able to justify objectively any age they stipulate for retirement.  The employer will be required to follow a fair procedure, including warning and consulting with the employee.  This means that an employee who is retired at an age that cannot be objectively justified will have a claim for unfair dismissal and age discrimination.

How, then, can employers ensure that the way in which they are retiring their employees is fair? Firstly, they must show that imposing a compulsory retirement age is “a proportionate means of achieving a legitimate aim” – and they must have the evidence to support this.

To justify “proportionate means”, the employer must show that imposing the retirement age will actually achieve its aim; that the discriminatory effect is outweighed by the importance and benefits of the ‘legitimate aim’; and that the employer should have no realistic alternative to the action that they are taking. A legitimate aim in this context could include economic factors, such as the efficiency of the business, the health, welfare and safety of company employees (including protection of young people or older workers), and the training requirements of the job.

Age discrimination

The Employment Tribunal would be unlikely to accept the employer’s explanation if they could have found a way of meeting the ‘legitimate aim’ that was less likely to discriminate against their employees.

The meaning of ‘objective justification’ is now a matter for the courts to define through precedent, and little guidance is currently available.  The Court of Appeal held in Seldon v Clarkson Wright & Jakes and Secretary of State for Business, Innovation and Skills[2010] that an employer could potentially justify retirement to avoid a drop in performance and therefore maintain a confrontation-free workplace.

Other potential justifications involved the ability of a business to ensure that associates were given a reasonable opportunity to become partners, thus providing realistic long-term expectations to existing employees about vacancies. The Supreme Court will hear the case on 17 January 2012.

An employer who does not retain a retirement age will be able to carry out individual ‘retirements’ if they can justify them on a case-by-case basis. If there is no objectively justified retirement age, the employer must show that there was another, potentially fair, reason for dismissal, such as capability or conduct, and they are advised to follow their capability or disciplinary procedures instead.

Equal treatment

In reality, the most effective and trouble-free method of ‘retiring’ an employee is likely to be through individual consultation and agreement. It may be advisable to put any questions about future plans to all employees as part of an annual appraisal, in order to ensure equality of treatment.

Ultimately, if an employer decides to impose a retirement age, it will fall to tribunals to decide if it is objectively justified, based on the facts of each individual case; employers should therefore be cautious about relying on a compulsory retirement age, and should do so only where there is strong evidence for justification.  Policies will also need to be amended to reflect the abolition of a normal retirement age and employers should consider changing their appraisal procedures and documents to make provision for the discussion of future aims and aspirations with all employees, regardless of age.

Finally, employers should always consider taking legal advice before making any changes to employees’ contracts of employment.

For more information contact David Leslie at dleslie@lyonsdavidson.co.uk

Posted on Jan 12th, 2012 by Lyons Davidson