Our employment experts consider the implications of the Seldon case on retirement and succession issues.
Legislation permitting a default retirement age of 65 was repealed on 1 October 2011. Since this date employers must objectively justify any compulsory retirement. In doing so, employers need to identify legitimate aim(s) and show that a specified retirement age is a proportionate means of achieving that aim/those aims. There has been considerable uncertainty as to whether, and, if so, on what grounds, employers are now able to justify retirement ages.
The Supreme Court has, however, now handed down the landmark ruling in the case of Seldon v. Clarkson Wright & Jakes, which goes some way in providing clarity and guidance for employers on handling issues of retirement and succession.
Seldon – the Facts
Mr Seldon was a partner in a law firm who was compulsorily retired at the age of 65. He issued proceedings alleging that his forced retirement was an act of direct age discrimination. The Tribunal rejected his claim holding that the firm retirement policy pursued three legitimate aims. These were: ensuring associates received the opportunity of partnership after a reasonable period; facilitating partnership and workforce planning by knowing when vacancies would arise; and limiting the need to expel partners by way of performance management thus contributing to a congenial and supportive culture in the firm. The Court of Appeal subsequently dismissed Mr Seldon's appeal. Mr Seldon then appealed to the Supreme Court arguing that the aims pursued by the firm were not legitimate and that the treatment had to be justified not only in respect of the firm generally but also in its particular application to himself.
Supreme Court Decision
The Supreme Court has now dismissed Mr Seldon's appeal. The leading judgment of Lady Hale includes an interesting discussion of the background to age discrimination legislation and a comparison of age with the other protected characteristics. The principal distinction being that, unlike other protected characteristics, a person's age is not fixed but something that inevitably affects everyone. Therefore, as an individual progresses through their working career, they may both enjoy the benefits and suffer the disadvantages of age-related provisions. For example, an individual such as Mr Seldon may have been the beneficiary of his firm's retirement policy when he was a junior lawyer aspiring to partnership but then later in life was deprived of the opportunity of continuing his career once he had reached the firm's retirement age. As well as considering the specific grounds of justification relied on by Mr Seldon's firm, the judgment contains an interesting discussion as to the factors that may constitute legitimate objectives and the extent to which they are legitimate in the particular circumstances of the employment concerned.
The Court decided that employers could have their own default retirement age if its legitimate aims satisfied public policy objectives as well as their own particular internal objectives. The Court also held that the three legitimate aims accepted by the Tribunal were acceptable and consistent with Article 6(1) of the Council Directive on Equal Treatment in Occupation and Employment as transposed by the Age Regulations 2006. In summary the Court held:
- staff retention and workforce planning were directly related to the social policy aim of sharing out professional employment opportunities fairly between the generations; and
- limiting the need to expel partners by way of performance management was directly related to the "dignity" aim.
Mr Seldon's second ground of appeal related to whether it was necessary for the treatment to be justified not only in respect of the firm but in its application to himself. Here the Court held that where it is justified to have a general rule then the existence of that rule itself will usually justify the treatment that results from it, in this case being in its application to Mr Seldon. The Court did, however, emphasise that all businesses would now have to give careful consideration as to what, if any, mandatory retirement rules could be justified in their particular businesses.
Finally, the case was remitted to the Tribunal to consider whether the choice of a mandatory retirement age of 65 was a proportionate means of achieving the legitimate aims of the partnership. On this point the Supreme Court was in agreement with the Court of Appeal in emphasising that it was right for account to be taken of the fact that at the relevant time a default retirement age of 65 existed.
What Does this Decision Mean for Employers?
The guidance from the Court confirms that it is possible for employers to justify compulsory retirement on specific grounds but that employers' objectives must be clearly identifiable and of a public interest nature. These include allocating fairly professional employment opportunities between generations thereby allowing for succession planning by employers and also avoiding the performance management of employees so as to preserve their dignity. However, in both instances it is important to remember that whether these are legitimate aims will turn on the particular circumstances of each case. Employers will, therefore, still need to carefully consider whether the legitimate aims identified are applicable in their own businesses.
This is not the end of the matter. Crucially, the Court remitted back to the Tribunal the question of whether the mandatory retirement age of 65 was a proportionate means of achieving the legitimate aims. In addition, of particular significance was the fact that the Court considered that the existence of the default retirement age of 65 at that time should be taken into account. Now that the default retirement age has been repealed, the question still remains as to the age at which employers can compulsorily retire employees. The Court has provided no explicit guidance on this point. Until further guidance is provided by the courts, employers will need to carefully consider this in tandem with identifying legitimate aims by way of justification. In doing so, it will be important for employers to gather sufficient evidence to demonstrate that the aims are legitimate and achieved through proportionate means.
Organisations such as Age UK are likely to regard the Court's judgment as unsatisfactory. Their argument would be that, if discrimination on account of age is regarded as unacceptable, why should it become so at a retirement age determined by the employer. In her judgment, Lady Hale had some sympathy for this argument and referred by analogy to sex discrimination, where it would not be acceptable to say that no women may apply for a physically demanding position merely because the majority of women would not be capable of performing the role. Nevertheless, the Luxembourg Court has held that the avoidance of unseemly debates about capacity is capable of being legitimate and therefore most employers should be in a position to argue that a specified retirement age is capable of being justified.