In our last edition of the Discrimination Law Review we reported on the decision of the Supreme Court in Seldon v Clarkson Wright & Jakes [2012] IRLR 591 which looked at the circumstances in which a compulsory retirement age might be justified. The highest court in the UK seemed to set the bar fairly high for those employers wanting to maintain a policy of compulsory retirement after the abolition of the default retirement age. Now, however, the Court of Justice of the European Union (CJEU) has issued a judgment which appears to take a much more relaxed approach to retirement. In this article we take a closer look at that judgment.

Background to the case

The case arose after a Swedish employee, Mr Hörnfeldt, challenged his retirement at the age of 67. He had wanted to work for another two or three years to improve his pension position, which, because of his part-time work history, was inadequate. Under Swedish law, although employees have the right to work until the age of 67 (subject to a relevant agreement providing a lower age), an employer may retire an employee at that age by giving one month's notice. Mr Hörnfeldt contended that this was unjustified age discrimination and contravened the EU Equal Treatment Directive.

Under the Directive, member states can provide that less favourable treatment because of age will not be unlawful if it is justified as an appropriate and necessary means of achieving a legitimate social policy aim such as those related to employment policy, the labour market or vocational training.

Previous cases have identified a number of potentially legitimate objectives including: promoting access to employment for younger people; the efficient planning of the departure and recruitment of staff; sharing out employment opportunities fairly between the generations; ensuring a mix of generations of staff so as to promote the exchange of experience and new ideas; rewarding experience; cushioning the blow for long serving employees who may find it hard to find new employment if dismissed; and facilitating the participation of older workers in the workforce. More controversially, the CJEU has also been prepared to accept issues around 'dignity' as potentially justifying direct age discrimination, including: avoiding the need to dismiss older workers on the grounds of incapacity or underperformance, thus preserving their dignity and avoiding humiliation; and avoiding the need for costly and divisive disputes about capacity or underperformance.

The CJEU's ruling

In line with previous CJEU cases, the Court accepted that the retirement rule had the following legitimate aims: avoiding the termination of employment contracts in situations which are humiliating for workers by reason of their advanced age; and freeing up posts so that younger workers can enter the labour market.

Of more interest, however, is the fact that the CJEU also focused very much on the fact that, before the retirement age of 67 was introduced, there was a lower retirement age of 65 in Sweden. The CJEU noted that the aim of the change was to extend the working life of employees beyond the original 65, thereby increasing the amount of future retirement pension and counteracting the shortage of labour which would result from large numbers of forthcoming retirements. Related aims included allowing the government to adapt to demographic changes and anticipate labour shortages, enabling the adjustment of pensions, and giving people the right (without obligation) to work past 65. These, the court said, were all legitimate social policy aims.

The Court then went on to consider whether the retirement rule was an appropriate and necessary means of achieving those aims, and concluded that it was. In reaching this decision the Court noted that compulsory retirement ages are widely used by many member states in order to achieve a balance between political, economic, social, demographic and/or budgetary considerations and that member states have a broad discretion to find the right balance between the different interests involved. Also of significance was the fact that the rule was longstanding and accepted by Sweden's social partners.

The CJEU balanced the reasons why the legislation was introduced and the benefits derived from it by individuals and society in general against the hardship it might cause to those affected. Interestingly, the Court concluded that it was not necessary for the 67-year rule to take into account the level of retirement pension affected employees would receive, particularly given the following factors: the rule gave an unconditional right to work to 67, with the parties having the ability to agree to go beyond 67; the pension age remained 65; and Swedish law provided for top-up social payments in the case of an inadequate earnings-related pension. On this basis, the Court was of the view that any hardship to the individual was outweighed by advantages to society generally.

The effect on UK employers

In principle this case could give some employers another line of argument when seeking to justify keeping a retirement age: if, for example, an employer has raised their compulsory retirement age they might be able to argue that their new approach was, at least in part, aimed at extending working lives.

Having said that, we can expect tribunals to scrutinise any such claims very closely. Individual employers cannot expect to enjoy the same indulgence as EU member states: it is well established that national governments have a broad margin of appreciation (ie more scope) when it comes to policy decisions. And although it is helpful to have clarification from the CJEU that a lack of adequate pension provision won't automatically stop a justification argument in its tracks, establishing that a retirement age is appropriate and necessary will still be a great challenge even after this case.

Hörnfeldt v Posten Meddelande, CJEU, 5 July 2012