The draft Employment Equality (Repeal of Retirement Age) Regulations 2011 (the Regulations) implementing the Government's plan to abolish the Default Retirement Age (DRA) have been published. The Regulations represent a significant policy and cultural change in the UK and come into effect on 6 April 2011. From that date it will no longer be possible to initiate the compulsory retirement of employees.
While the removal of the DRA creates many uncertainties for employers, one thing that is expected is that employers will have to deal with more employees wanting to continue working beyond the age of 65. The latest figures from the Office of National Statistics show that the number of people aged 65 and over in employment has risen by just under 25 per cent in the last two years, from 706,000 in the last quarter of 2008 to 874,000 in the last quarter of 2010.
It appears that the key driver for this trend is financial. Prudential's Class of 2011 study found that nearly two thirds of those who planned to retire in 2011 would consider continuing to work in order to boost their retirement income. According to the study, around a third of those who initially intended to retire this year would consider working for up to another two years and more than 20 per cent would work for another two to five years, if that would result in greater income in their retirement.
The Regulations – key points
- The DRA will be phased out from April 2011 – this means that (unless the retirement process was started before 6 April) employers will no longer be able to lawfully dismiss an employee simply because they have reached 65.
- From October 2011, retirement will no longer be a potentially fair reason for dismissal. Any dismissal will therefore need to fall within one of the other potentially fair reasons.
- The statutory retirement procedure (involving notification of the retirement date and the right to request working beyond the retirement date) will be removed.
- The right to refuse to employ someone on the basis that they are within six months of the DRA is also removed.
- Employers can opt to maintain their own compulsory retirement age, but will have to be able to objectively justify it.
- It will be lawful to cease providing certain group insured benefits such as death in service and PHI to employees who continue to work beyond 65 or the State Pensionable Age, whichever is greater.
Abolition of DRA - practical considerations
Post-6 April 2011, employers have two choices: either retain a compulsory retirement age for employees that can be objectively justified or work without one altogether.
Retaining an employer justified normal retirement age (EJRA)
An employer considering retaining a retirement age for some or all of its staff will need to consider whether it can objectively justify the chosen retirement age.
Justifying an EJRA
Operating an EJRA after 6 April is likely to be a risky route for most employers and should not be followed lightly. Both ACAS and the Government have commented that it will not be easy to justify an EJRA. Before deciding on this course of action, proper consideration should be given to the reasons and business case for retaining an EJRA. An EJRA may apply to all employees or to all employees within a particular group or individually for a particular employee. It is likely to be easier to justify retirement ages targeted at different groups of employees as opposed to a single age for all employees, regardless of the role they perform.
To avoid claims of unfair dismissal and age discrimination from employees retired when they reach the EJRA, the employer must be able to show that the continued use of its EJRA is objectively justified by showing that:
- there is a legitimate aim, i.e. a real business need that is being met;
- having a particular retirement age meets that aim; and
- using that retirement age is a proportionate way of achieving that aim.
The first limb of the test requires the employer to have a legitimate aim. What will amount to a legitimate aim will depend on the facts of any particular case. The Court of Appeal, in the case of Seldon v Clarkson Wright & Jakes and the Secretary of State for Business, Innovation and Skills accepted that workforce planning, the facilitation of recruitment and retention of younger workers and the protection of the dignity of older workers by avoiding performance management procedures amounted to legitimate aims. That case has however, been appealed to the Supreme Court and there is growing commentary casting serious doubt on the Court of Appeal's reasoning.
Cases before the ECJ have also accepted that maintaining diversity by sharing job opportunities between the generations and ensuring service of a high quality or continued competence amount to legitimate aims. However, an employment tribunal in the UK would be unlikely to accept these to be legitimate aims without evidence that, for example, a prevalence of older workers is preventing younger ones entering a particular profession or that capability in a particular job actually decreases with age. For example, in Baker v National Air Traffic Service Ltd, an employment tribunal held that a ban on anyone aged 36 or over applying to become a trainee air traffic controller could not be justified. The employer's evidence did not support its contention that older recruits compromised safety. In its consultation on the abolition of the DRA, the Government stated that there was no evidence to support either a proposition that older workers block jobs for younger employees or that, for most types of job, performance generally declines with age.
Secondly, employers will need evidence that having their chosen compulsory retirement age meets their business aims. This will require evidence of a link between the age and the aim being met, for example evidence that performance in or ability to carry out a particular role drops off at the chosen age.
Finally, the employer has to show that the retirement age is a proportionate way of achieving that aim. Ultimately, employment tribunals will be looking for evidence to show that having that particular compulsory retirement age goes no further than is necessary to achieve the aim and that there is no alternative, non discriminatory or less discriminatory, way of achieving the aim. For example, would it be possible to establish whether an employee is still able to carry out their duties by using fitness or competency tests, rather than a crude age cut-off? Employers should therefore consider other ways of achieving the aim and have their reasons ready to explain why those methods were not more proportionate.
Fair procedure for retirement
An employer that retains an EJRA will still have to follow a fair procedure when retiring employees, if it is not to fall foul of unfair dismissal legislation. Although retirement is being removed as a fair reason for dismissal, compulsory retirement at an EJRA will amount to "some other substantial reason". However, ACAS says very little in its Guidance on Working without the default retirement age about the procedure that should be followed. It is likely that employers will need to follow a procedure similar to the current statutory retirement procedure (even though this is being abolished), with adequate notification of the retirement date, the opportunity for the employee to request to continue working beyond the EJRA, proper consideration by the employer of any such request and the right of appeal against an adverse decision.
Working without a compulsory retirement age
Retirement as a concept is firmly embedded as feature of working life in the UK and working without a fixed retirement age will represent a sea change for many employers and employees. In its Guidance ACAS emphasises the need to have a culture where employees of all ages are treated fairly and consistently, regardless of age.
An employer operating without a retirement age will have to rely on one of the other potentially fair reasons for dismissal - conduct, capability, redundancy or some other substantial reason - in order to dismiss employees, including those close to pensionable age. It will be vital to ensure that there are proper conduct and capability policies and systems in place, that managers know how to deal with performance management and ill health issues and do so fairly and consistently throughout the whole organisation. Subjecting a younger employee to the capability procedure while failing to take action against an underperforming older employee will discriminate against a younger employee, just as targeting older employees for performance management will be discriminatory against them.
Open and regular communication will be essential to adapting to life without a fixed retirement age. ACAS recommends regular workforce planning discussions for employees at all stages of their careers. An employer must be careful not to single out older workers for discussions about retirement or the future and should discuss future plans and career aspirations with all employees. Such discussions could form part of the annual appraisal process or could be held as a separate workplace discussion.
Employees will still, of course, be able to retire voluntarily. They will need to give contractual notice in the same way as any other type of resignation. It will not be unlawful for an employer to discuss retirement options with employees who ask them to do so. There are a number of alternatives to outright retirement that employees may wish to think about as they begin to consider and prepare for retirement, including changes to working hours or to their roles and responsibilities. But it should not be assumed that this is the case and potential changes should be discussed and agreed with the employee in question, not imposed by the employer. It may be that employers see increased requests from employees for flexible working in the run up to a proposed retirement, especially if the Government goes ahead with its plan to extend the right to request flexible working to all employees.
Managing the transitional period – important dates
Employers need to consider whether to take advantage of the transitional provisions to ensure that all employees who are already or will be 65 by 30 September 2011 are forced to retire now. This approach is lawful, but may have industrial relations implications. It also only fixes perceived problems in the short term and does not address the need for a long-term strategy for adapting to life after abolition of the DRA. The transitional provisions allow employers to lawfully retire employees in accordance with the current statutory procedure provided:
- the employee has or will have reached the age of 65 (or the employer's normal retirement age if that is higher) by 30 September 2011; and
- a notice of intention to retire is given to the employee on or before 5 April 2011 (but see comments below);all of the requirements of the statutory procedure are met.
Employers wishing to take advantage of these transitional provisions need to be aware of the following key dates.
Last date for giving notice – 5 April 2011
The last date for giving the required six to 12 months' notice of the intended retirement date under the current rules is 5 April 2011. However, if the employer wishes the employee to retire on 30 September 2011, notice will have to be served by 30 March. For such a retirement, any new notices issued between 31 March and 5 April will be short notices, as a result of which employees may be able to claim up to eight weeks' pay as compensation and the reason for dismissal will not automatically be deemed to be retirement, nor will the dismissal be automatically fair. The provision allowing the short two-week notice of retirement will also cease on 6 April 2011, and this short notice procedure will not be permitted after this date.
Last intended date of retirement – 5 April 2012
Under the transitional provisions an employer must still give six to 12 months' notice of an intended retirement date. This means that, so long as the employee is 65 on or before 30 September 2011, a notice of intention to retire given on 5 April 2011 can notify the employee of an intended retirement date of up to 5 April 2012.
Last date to exercise right to request to work beyond retirement – 5 January 2012
The transitional provisions provide a longstop date of 5 January 2012 for an employee (who has been notified of retirement on 5 April 2011) to exercise their right to request to work beyond retirement.
Last date of retirement where extension agreed – 5 October 2012
Where an employer agrees to a request to work beyond the intended retirement date, they have two options under the current law – agree to a fixed period that the employee will work beyond retirement or agree to an indefinite period of working beyond retirement.
If a fixed period of a maximum of six months is given, the employment terminates automatically at the end of that period without the requirement for any further notice. This means the last date of retirement under existing law is 5 October 2012.
Because an employer cannot issue any new retirement notices after 5 April 2011, if any longer or indefinite extension is agreed in response to a request to work beyond retirement, then the employer will not subsequently be able to retire that individual under the DRA process, but will have to dismiss for another reason or wait for them to retire voluntarily.
Preparing for the change – practical steps
The abolition of the DRA throws up several other practical issues for employers to consider and best practice would dictate that these are at least considered prior to 6 April 2011.
- Carry out a review of your workforce and establish which employees, if any, will turn 65 (or reach your normal retirement age if higher) on or before 30 September 2011. For those that fall within that bracket, consider whether to retire those employees under the current statutory retirement procedure. If so, notice must be served (to ensure fairness) on or before 5 April 2011 and needs to give six to 12 months' notice of the retirement date (unless the short notice provisions are being used in which case notice must also be served on or before 5 April 2011 but the dismissal will not be automatically fair).
- Review employment documentation and identify areas that need to be updated. If the normal retirement age is being (i) abandoned - this will need to be removed from the handbook/contracts and staff notified of the change; or (ii) retained - ensure that this can be objectively justified and that there is evidence to back this up.
- Amend benefits documentation to reflect that benefits will be withdrawn from employees on reaching 65 (if you decide not to fund the continuation of benefits post age 65).
- Consider what training will be required for staff and, in particular managers, to assist them in adapting to life without the DRA, in particular relating to the skills required for performance management, appraisals and workforce planning discussions.
- Ensure that equal opportunities, recruitment, capability, conduct and redundancy policies are up-to-date and that managers are properly trained on using them in practice.
If you have not already done so, employers will need to decide whether to retain a compulsory retirement age or not. Those who wish to retain an EJRA will need to ensure that they are able to objectively justify the particular age chosen and that they have evidence to support their justification. We anticipate the employment tribunals will take a tough line on what is required to establish justification. The best chance of successfully justifying an EJRA is likely to rest with those employers who have given serious thought to their strategy and applied compulsory retirement ages to individual employees or groups of employees rather than the workforce as a whole and where they have done so for specific, objectively provable, reasons supported by tangible evidence.