The European Court of Justice’s (ECJ) recent ruling in Heyday1 stating that default retirement ages set by EU member status do not breach EU law provides an answer of sorts to two hotly debated topics: whether the UK’s default retirement age of 65 breaches the underlying EU legislation, and whether the UK’s approach to direct age discrimination is incorrect. However, interest in the case will not subside until the High Court decides whether the UK’s legislative policy of permitting forced retirement at age 65 or over is justified by a legitimate aim and whether that aim is achieved in an appropriate and necessary manner.
Age discrimination: the basics
The EC equal treatment framework directive 2000/78/EC (the directive) prohibits age discrimination. The age discrimination aspects of the directive were implemented in the UK on 1 October 2006 by means of the Employment Equality (Age) Regulations 2006 (the regulations).
What does the directive say about retirement ages?
‘The directive shall be without prejudice to national provisions laying down retirement ages.’ (Recital 14)
‘Member states may provide that differences of treatment on the grounds of age shall not constitute age discrimination if, within the context of national law, they are objectively and reasonably justified by a legitimate aim, including legitimate employment policy, labour market and vocational training objectives and if the means of achieving that legitimate aim are appropriate and necessary.’ (Article 6)
What do the regulations say about retirement ages?
‘Nothing in Part 2 [Discrimination in Employment and Vocational Training] or Part 3 [Other Unlawful Acts] shall render unlawful the dismissal of a person to whom this regulation applies at or over the age of 65 where the reason for the dismissal is retirement.’ (Regulation 30)
In other words, regulation 30 provides a defence for employers who dismiss employees because they have reached the normal retirement age (NRA) for a job or, where there is no NRA, age 65. The only proviso is that an employer must follow the stipulated procedure, namely to give an employee written notice of his right to request not to retire and to consider any subsequent request.
The rationale behind mandatory retirement ages
- They make succession and financialplanning easier and, by reassuring younger employees of future promotion prospects, help employers retain valued younger employees.
- They reduce the risk of having to manage out older employees on capability grounds.
- In a downturn, forcibly retiring people at a particular age is a relatively simple way of reducing employment costs (for employers) and managing unemployment statistics (for the government).
Background to Heyday
In July 2006, the National Council on Ageing (operating as Heyday) made a High Court application for judicial review of the regulations because Regulation 30 breached the UK’s obligations under the directive.
The High Court referred the case to the ECJ.
Questions referred to the ECJ
- Does the framework directive cover national rules that allow dismissal of employees aged 65 or over for reason of retirement?
- Do member states have to define the types of differences in treatment that might be justified by, for example, a list that is similar to the list of possible justifications in the framework directive?
- What (if any) is the significant practical difference between the directive’s justification tests for direct and indirect discrimination?
What was the Advocate General’s Opinion?
- The directive does not affect a member state’s ability to set retirement ages. This interpretation was uncontroversial and unsurprising in asmuch as it followed the earlier ECJ decision in the Spanish case of Palacios.2
- The fact that it does not contain a specific list of permissible treatment does not automatically make national legislation incompatible with the directive. A rule can be justified by a legitimate aim relevant to employment policy and the labour markets, provided that the means to achieve it are not inappropriate and unnecessary.
- There is no higher test for justifying direct age discrimination compared to indirect discrimination and thus no significant practical difference between the two tests. 2 Palacios de la Villa v Cortefiel Servicios SA (C-411/05)
The ECJ decision
The ECJ followed the Advocate General’s Opinion. As a consequence:
- employers are reassured that (at the moment) it is permissible for national law to allow compulsory retirement of people aged 65 and over, provided the correct procedure is followed;
- employers can continue with their current financial and succession plans (two of the main reasons why older employees are forcibly retired); and
- employees who are sitting on age discrimination and unfair dismissal claims that have been stayed in anticipation of the Heyday ruling will not succeed in those claims (there are about 260 such stayed claims). There is also no danger of the floodgates being opened to similar claims; but
- importantly, this outcome is not a clear victory for employers because the government still has to convince the High Court that forcible retirement at age 65 or over is justifiable as a legitimate aim in terms of social and economic policy. The High Court’s decision is expected later this year.
The ECJ’s decision represents only a staging post in this issue. The High Court’s forthcoming decision should be taken with reference to the ECJ’s comments that aims involving social policy objectives (such as those behind the permitting of forced retirement of workers aged 65 and over) are only legitimate if they have a ‘public interest nature’. ‘Individual reasons particular to the employer’s situation’ are unlikely to be legitimate. This may prove tricky: many of the reasons in favour of preserving the status quo relate to difficulties that individual employers would face should the law on forced retirement be changed. It is also important to remember that the legitimacy of the aim relied on as justification for retiring workers at 65 requires a high standard of proof.
Whatever the High Court’s decision, it is likely that there will be an appeal. Consequently, the final result in the case might not be in before 2010.
The government has pledged to review the mandatory retirement age by 2011. By that stage, pressure to raise the age or to scrap it, may be even greater. Several factors add weight to this:
- an ageing workforce. In 2005, 20 million people in the UK were aged 50 or over. By 2026, as a consequence of improved longevity and declining birth rates, it is forecast that half the adult population will be aged 50 or over3;
- financial pressures such as the closure of many final salary pension schemes meaning that retirement at age 65 is an unviable proposition for many people, particularly when taken in conjunction with the financial demands inherent in a longer life;
- medical and social improvements meaning that increasing numbers of people will enjoy good physical and mental health for longer. Many of these people want to take advantage of their continuing good health and work past the age of 65;
- the current economic situation may make downsizing workforces by means of early retirement a less attractive option for employers; and
- precedents set by other EU member states, such as France, where it is now almost impossible to impose retirement on employees younger than 70. Employers are permitted to make a formal request that an employee aged between 65 and 69 retires but the employee is not obliged to do so.