In the same week as the Bloxham judgment, the European Court of Justice ruled on a case considering compulsory retirement ages. The court has held that, although forced retirement at a selected age is considered discriminatory, in this case it was justified because it helps to stablise the workforce by promoting employment across generations.

The Palacios de la Villa v Cortefiel Servicios SA (“Palacios”) case concerns compulsory retirement ages under applicable collective bargaining arrangements.

As noted in the Bloxham case, in general, age discrimination is prohibited. However, under the Equal Treatment Directive, Member States may continue to have national provisions laying down retirement ages. They can also permit age qualifications, without this constituting discrimination, for joining or starting to receive benefits from “occupational social security schemes”.

Member States must take measures to ensure that laws and other administrative provisions contrary to the principal of equal treatment are abolished and provisions in other areas such as collective agreements which "offend the principal of equal treatment" are amended or invalidated.

Different treatment on grounds of age may continue if it is objectively and reasonably justified by a legitimate aim.

Until 2001, compulsory retirement was used as a mechanism to regulate the Spanish labour market. In 2005, the Spanish Parliament amended legislation to provide that collective agreements could continue to contain clauses permitting termination of contracts on the grounds of age, provided that the measure was linked to objectives which were consistent with "employment policy" and the justification was set out in the collective agreement. In addition, any worker whose contract was terminated must be of an age and qualify for a retirement pension under the relevant contribution regime. Crucially, the 2005 legislation provided that where a collective bargaining agreement was already in force there was no requirement to amend it to refer to the "objective justification" qualification. The only requirement was that the individual must have the age and service qualification to start receiving pension benefits.

Details of the Palacios case

Señor Félix Palacios de la Villa, an employee of Cortefiel Servicios SA, was notified that his employment would end under the terms of the collective bargaining agreement on his 65th birthday. Señor Palacios objected to this on the grounds of age discrimination. The applicable agreement was in place before 2005. The Spanish courts sought clarification as to whether Spanish law, as it applied to pre-2005 collective agreements, had properly implemented the Directive, i.e. should pre-2005 collective agreements be declared invalid because they did not explicitly refer to the “objective justification” provisions and/or were the provisions of Spanish law permitting compulsory retirement compatible with the Directive?

The European Court of Justice held that as the law had been implemented with the aim of promoting employment it remained valid, as did the provisions of the collective agreement even though it did not explicitly refer to the aim of promoting employment.

What does this mean for the UK?

In the UK, retirement age is usually set by the employer or, in certain industries, with some trade union involvement. Contracts do not contain or refer to reasons for selecting a particular age. Under English law the government has set a “default” retirement age of 65. If an employee wishes to work beyond this age he or she may make a request which an employer has to consider. If the request is not agreed the employee may be dismissed without this constituting unfair dismissal by reason of age. It is important to note that employers may select an earlier retirement age but would need an objective justification for the selected age.

It is possible to infer from the Palacios decision that the need to have new and younger employees coming through the work force may be an acceptable justification for setting a retirement age.

This may be a factor that is considered in the upcoming “Heyday” case. This high-profile case sees Heyday, an organisation backed by Age Concern, challenge the UK government on their decision to include a default retirement age which employers may adopt in the Age Regulations. So, while currently employers may be able to simply rely on the “default” age of 65 without any separate justification, it may not be possible if the government loses this case. The implications for employers will be discussed as the case progresses.