The long awaited decision from the Supreme Court in the case of Seldon v Clarkson Wright and Jakes has resulted in Mr Seldon (a partner in the law firm, CWJ, forced to retire at 65) losing his appeal. It is not quite the end of the road for Mr Seldon as the case has been remitted to the Tribunal to determine one final point. However, there is no doubt that this decision will create a significant challenge for employers seeking to justify a compulsory retirement age.
Justifying age discrimination
CWJ admitted that compulsory retirement at 65 amounted to direct age discrimination but defended the claim on the basis that it was justified. It relied on six legitimate aims, connected with workforce planning and maintaining the dignity of older partners. Having balanced the needs of CWJ against the impact of the retirement at 65 rule upon its partners, the Tribunal concluded that three of the stated aims were legitimate. They amounted to a proportionate means of achieving a congenial and supportive culture and encouraging professional staff to remain at the firm. The discrimination claim therefore failed.
Mr Seldon, having lost his appeals in the Employment Appeal Tribunal and the Court of Appeal, appealed to the Supreme Court.
The Supreme Court’s view
In a detailed judgment, the Supreme Court ruled the following:-
- The defence for direct age discrimination is different to that for indirect age discrimination. For both, the test is ostensibly the same – i.e. that the treatment or provision, criterion or practice giving rise to discrimination must be a proportionate means of achieving a legitimate aim. However, in direct discrimination claims, the only aims on which an employer can rely are social policy objectives of a public interest nature. Individual aims which relate to the employer’s situation, such as cost reduction or an improvement in competitiveness, would generally not constitute legitimate aims. The view of the Supreme Court was that the three aims identified by the Tribunal were capable of being legitimate aims in this case.
- An employer is required to justify a particular measure in the context of the circumstances of the business rather than the particular individual.
- The stated legitimate aims of a mandatory retirement age were related to legitimate social policy aims and also related to the particular circumstances of CWJ.
Although he lost his appeal, Mr Seldon’s case is to return to the Tribunal for one final point to be considered: whether the choice of the actual age of 65 was an appropriate means of achieving the aim of preserving the dignity of partners (through not having to performance manage them out of the partnership). It is important to remember that the Tribunal will be considering the circumstances as they were in 2006, when there was a designated retirement age of 65 for employers, rather than as they are now. One of the Supreme Court judges expressed the view that the fact that it was lawful for others to be subjected to a designated retirement age at that time may help CWJ demonstrate that the retirement clause was, at the relevant time, an acceptable way of preserving partner dignity. An employer facing the same claim in 2012 may find it far more of a challenge to justify a mandatory retirement age of 65.
Impact and recommendations
Although this case was brought under the Age Regulations, the same principles will apply to the age discrimination provisions of the Equality Act 2010. Similarly, although this was a case brought against a partnership, the principles will apply equally to other employers.
Our advice to clients, since the repeal of the designated retirement age of 65 in 2011, has been that it will only be in limited circumstances that an employer will be able to justify a default retirement age. The majority of our clients have elected not to have one and to deal with retirement on a case by case basis.
For those who continue to apply a compulsory retirement age, they will need to:
- Ensure that the rationale can be linked to one of the permitted legitimate social policy aims (i.e. legitimate employment policy or labour market and vocational training objectives). Aims which have been held to be legitimate in recent European cases have been: promoting access to employment for a particular age-group; the efficient planning of the departure and recruitment of staff; ensuring a mix of generations so as to promote the exchange of experience and new ideas; and avoiding disputes about an employee’s fitness for work over a certain age.
- Consider whether the aim of the retirement age is legitimate in the particular circumstances of the case (that is the workforce as a whole, rather than an individual employee). Therefore, to give an example, avoiding the need for performance management amongst older workers might be a legitimate aim, but if the employer has sophisticated performance management measures in place it may not be legitimate to avoid performance management for only one section of the workforce.
- Establish whether the legitimate aim is both appropriate and necessary. So whilst avoiding performance management processes for older workers might be a legitimate aim, it does not necessarily follow that having a mandatory retirement age of 65 is an appropriate or necessary means of achieving that aim. The means must be carefully scrutinised in the context of the particular business concerned to determine that there are not other, less discriminatory, ways of achieving the same aim.
- Finally, ensure that there is an explanation, not only for why a compulsory retirement age is necessary, but why a particular retirement age is necessary (preferably supported by evidence, e.g. that performance deteriorates after a particular age in the given profession).
Even if an employer does not go through the analysis set out above at the time of fixing its retirement age, it may not result in defeat. The Supreme Court emphasised that an employer can rely on a legitimate aim which it did not have in mind at the time the retirement age was devised, or even if they did not apply their mind to the issue at all. This may provide some comfort to employers. However, inevitably, a justification argument is going to be far more compelling if the employer can show it did consider the particular aim at the relevant time and had careful analysis and evidence to back it up. Furthermore, it will be necessary to keep a retirement age policy under review. An aim that was legitimate 10 years ago may not stand the test of time.
The decision has limited implications for pension schemes.
The main issue for pension schemes arises where the employer does not have a compulsory retirement age, and the member continues working beyond the scheme’s normal retirement date (NRD) and wishes to continue accruing benefits. In these circumstances, schemes should offer members the option of continued benefit accrual on the same basis as applied before NRD, unless they can rely on a specific exemption in the Equality Act. The Equality Act specially provides that defined benefit schemes can, for example, limit accrual to a maximum number of years of service or a maximum percentage of (pensionable) pay.
However, where an employer imposes a compulsory retirement age, the issue of continued accrual after that age should be irrelevant.
There may well still be certain industries where a compulsory retirement age can be justified. However, this case has generated significant publicity and, in an era where health is improving and pension values falling, there are going to be many more people like Mr Seldon challenging their employer’s decision to compulsorily retire them before they are ready to call it a day.