Remind me, what has happened so far?

Wragge & Co's experts have followed developments on the phasing out of the default retirement age (DRA). As things currently stand:

  • The DRA was phased out on 6 April 2011. Employers can no longer serve employees notice relying on the statutory retirement procedures.
  • Retirement is no longer a fair reason for dismissal under the Employment Rights Act 1996.
  • From now on, any employer seeking to rely on a contractual retirement age (referred to by many as an employer justified retirement age or EJRA) will need to be able to objectively justify that age to successfully defend age discrimination claims. The normal tests relating to the fairness of any dismissal (e.g. the procedure followed) will apply, and the employer will need to rely on the dismissal being for 'some other substantial reason'.

A transitional period applies. Where the following applies, an employee can still be dismissed under the statutory procedures when the notice lapses:

  • an employer served a retirement notice to an employee on or before 5 April 2011; and
  • the employee was due to reach 65 on or before 1 October 2011.

If I served my employee with an effective notice before 5 April then am I OK?

Not necessarily. In the case of Ayodele v Compass Group, the Employment Appeal Tribunal held that employee requests to remain in employment after the age of 65 must be considered 'in good faith', and blanket policies of refusal should not be relied upon.

This does beg the question concerning how an employer, who now has no default retirement age in respect of most employees, could 'in good faith' refuse a request to work longer by an employee who was served with statutory notice before 5 April 2011.

Can I rely on objective justification if I still want a contractual retirement age?

If an employer wants to successfully rely on its own contractual retirement age, it will need to be able to objectively justify it. This means showing that it is a proportionate means of achieving a legitimate aim.

The European Court of Justice (ECJ) decision in Fuchs v Land Hessen appears to have given many employers false comfort on this point. In that case, the ECJ held that a German law requiring state prosecutors to retire at 65 was justified on the basis that it was "reasonable" to do so, to encourage the promotion of a younger workforce. The ECJ also suggested that the motives behind an employer having a particular contractual retirement age could change over time.

The ECJ judgment is somewhat confusing, and while it may provide useful guidance on the European Court's approach to objective justification, it cannot be looked at in isolation. UK tribunals have taken a more rigorous evidence-based approach to assessing employer arguments of objective justification, and have shown no signs of relaxing such an approach. In the UK, proportionality is proving to be the real challenge. Employers who retain an EJRA without assessing whether it is necessary and proportionate, do so at their peril!

Finally, even if UK tribunals do demonstrate a more relaxed attitude to objective justification in retirement cases in the future, this will not prevent claims being brought by employees in the first instance, and the employer incurring costs in defending such claims.

So how can I manage retirements in future if I don't have an EJRA?

'Retirement' as a concept may no longer be a useful way of thinking about how best to approach employee management.

Rather than focusing on employees who reach a particular age, employers should focus on improving their capability management processes for all employees. This will help ensure that any issues with employee performance are managed effectively across the board.

Good performance management might include:

  • training managers in effective and objective performance management techniques
  • setting employees clear objectives and addressing any performance issues promptly
  • gathering objective evidence on employee performance
  • providing sufficient training, support and time - where appropriate - for an employee to improve
  • maintaining a fair, consistent and reasonable process by which employee performance can be monitored and managed
  • keeping evidence of discussions and feedback on performance
  • treating all employees consistently regardless of age.

Is there anything else I need to think about?

A couple of sticky areas came out of the Government's consultation on phasing out the DRA:

  • treatment of leavers under share option schemes; and
  • treatment of group insured benefits.

For more detail on the consultation, see our previous analysis.

The former was not addressed by the Government. Employers with share option schemes therefore still need to think about how 'good leavers' and 'bad leavers' are treated within that scheme, to avoid employees who leave the organisation at the end of their career being penalised because they 'resign' rather than 'retire'.

The Government did provide a carve-out for group insured benefits in legislation. It stated that it is not age discrimination for an employer to make arrangements for the provision of insurance benefits to employees only up to the age of 65 or state pension age (whichever is higher). However, "arrangements" are defined as those between the employer and another person. Certain benefit arrangements such as self-insured employee benefit trusts may therefore not be covered by this exemption. The exemption will only apply where the cut off is age 65 or state pension age. Arguably group insurance schemes that have another cut-off age will not be covered.

What does this mean? See our action points for some of the next steps to consider.