In Air Products v Cockram, the Court of Appeal ruled that it was lawful for an Long Term Incentive Plan to provide that departing employees could retain their unvested awards if they left after the company's customary retirement age of 55. On the specific facts, the retirement exception was justified as a proportionate means of achieving the legitimate aims of encouraging retention, incentivising retirement and intergenerational fairness.


The LTIP in this case was a global share plan available to employees of a US corporation and its subsidiaries, which provided that:

  • as a general rule, a departing employee would forfeit all unvested awards on termination of their employment,
  • but that employees would retain their awards if they were leaving employment "on or after a customary retirement age" for their particular location.

In the UK, the customary retirement age was considered by the company to be 55, in line with its Defined Contribution pension plan which had a retirement age of 55.

The claimant retired at age 50, which he was entitled to do under the terms of his Defined Benefit pension plan which had been closed to new entrants since 2005.

He argued that restricting the retirement exception to employees aged 55 or over was directly discriminatory on grounds of age and was not objectively justified.

On the facts, the retirement exception clearly involved less favourable treatment of the under 55's, but the issue for the Court of Appeal was whether the less favourable treatment could be objectively justified.

According to the Supreme Court's judgment in Seldon, direct age discrimination such as this (as opposed to indirect discrimination) can only be objectively justified by legitimate social policy objectives rather than purely company-specific reasons.

Court of Appeal Decision

The Court of Appeal upheld the Employment Tribunal's decision that the retirement exception was justified as a proportionate means of achieving a legitimate aim:

  • it encouraged retention until the age of 55 and then provided some incentive for retirement in order to create opportunities for younger employees, therefore striking a balance between encouraging retention on the one hand and ensuring a mix of generations of staff on the other, and
  • it achieved consistency between members of the DC and DB pension schemes, and this was a legitimate social policy aspect of intergenerational fairness.


Since legislation preventing age discrimination was introduced and the concept of compulsory retirement largely abolished, it has been both hard to define retirement for the purposes of LTIPs and unclear if and when retirement exceptions could be justified. The Court of Appeal's decision in this case did not grapple with the definition of retirement but did take a helpful approach to justification.

The justification that the retirement exception encouraged retention up to a specified age was seen as so obvious that the Court of Appeal determined that it barely required evidence at all. The Court of Appeal rejected the argument that the employer had to produce evidence that the retirement exception had in fact led to high retention rate. Employers with similar retirement exceptions in their LTIPs will be reassured by this decision, although each plan still needs to be justified on its own facts and this decision does not mean that all such retirement exceptions are justified.

Many employers have already moved away from including retirement exceptions in their LTIPs given the inherent risks associated with defending them. Some have abandoned any attempt to reward employees who are retiring and others have opted for alternatives such as rewarding long service, which may be indirectly discriminatory but is not direct discrimination (and so avoids the need to identify a social policy objective). It still remains safer to avoid direct age-based retirement exceptions.