The Government has announced that it proposes to phase out the default normal retirement age during 2011. If so, employers will in future have to justify any compulsory retirement of employees.

The current position

It is currently lawful to compulsorily retire an employee upon or after their normal retirement age (“NRA”) without having to justify the decision. An employee’s NRA may be stated in their contractual terms and conditions of employment. If not, the default NRA of age 65 will apply.

The enforced retirement of an employee upon or after an NRA which is age 65 or over does not need to be justified in order to be lawful and will not amount to age discrimination. Also, provided that the statutory retirement procedure is followed, such an enforced retirement will not amount to an unfair dismissal.

The legal challenge

As many readers will know, a legal challenge was pursued by Heyday (part of Age Concern) that the UK legal position of allowing mandatory retirement at age 65 or over was contrary to the European Directive that the UK age discrimination legislation was supposed to implement.

That challenge went as far as the European Court of Justice and then the High Court. The arguments were finely balanced, focussing on whether the particular default retirement age of 65 could be justified.

On one hand, the High Court was attracted to the arguments that there were good reasons to have a default NRA of higher than 65, particularly given the greater levels of longevity (and thus burden on state retirement benefits) and the absence of evidence to suggest that those in age group 65-70 generally suffer from a decline in performance.

On the other hand, the Court recognised that there was a lack of consensus across Europe as to default NRAs and that several other countries had also adopted a default NRA of age 65. Also, the public consultation exercise that preceded the UK age discrimination legislation had at that time shown a lack of enthusiasm from all interested parties, including trade unions, for a higher default NRA of 70.

The legal challenge ultimately failed but the High Court judgment gave a very strong indication that the default NRA of 65 would cease to be defensible in the near future. The Court said that a default NRA of 65 was justified for the Government’s policy aims of preserving confidence and integrity in the labour market, having regard to the state of the economy at the time when the age legislation was introduced (2006) and the fact that the Government had committed to a review of the default NRA in 2011 (which was subsequently brought forward to 2010). In light of those factors, the Court found that the UK legislation fell within the UK’s ‘margin of discretion’ when giving domestic effect to EU Directives.

However, the High Court remarked that it did not think that the default NRA of 65 would be justified had the legislation been introduced in the current poor economic circumstances or had the Government not committed to a review of the matter in the near future.

On that basis, interested parties have awaited with interest to see what the Government would propose to do about the issue of mandatory retirement.

The proposed changes

The Government has boldly announced that it proposes to remove the default NRA of age 65 altogether, rather than taking the perhaps more conservative step of raising the default NRA.

A joint consultation on the proposal by Department for Business, Innovation and Skills and DWP is underway and this is due to run until 21 October 2010.

Assuming that the proposal is implemented, it will in future no longer be possible to enforce a retirement without having to justify the decision. It will still be possible to insist that an employee retires, but that will only be lawful if the decision can be objectively justified – if it can be shown to be a proportionate means of achieving a legitimate aim.

Consequently, the current statutory retirement process of giving 6-12 months’ notice of intended retirement and giving the employee an opportunity to request to carry on working will also be abolished. An enforced retirement dismissal would likely be subject to usual fair procedure principles established by the law of unfair dismissal and there may be future guidance on handling retirement dismissals such as a new ACAS Code of Practice. Quite what further guidance there might be is one of the subjects covered by the current consultation exercise.

As one would expect with such a significant change, the Government has proposed that there will be a transitional period. Notifications of compulsory retirement under the current regime issued to employees before 6 April 2011 will be lawful provided that the employee’s retirement date falls before 1 October 2011. However, no new notices of intended retirement may be issued from 6 April 2011 and any retirement dismissal that takes place from 1 October 2011 will need to be objectively justified, even if notice under the current regime was issued before 6 April 2011.

Justification

Guidance published by the Equality and Human Rights Commission suggests that, in trying to demonstrate an objective justification for retirement, employers will need to show that the discriminatory effect is significantly outweighed by the benefit and importance of the legitimate aim, that the employer has no reasonable alternative to the action they are taking and that the legitimate aim must correspond with a legitimate need of the employer. In many cases it will not easy to demonstrate that a retirement can be objectively justified and employers will have to provide good evidence to support their position. However, BIS and DWP acknowledge that compulsory retirements may be more easily justifiable for certain employees such as police officers and air traffic controllers.

Employment tribunals may also take guidance from cases that have involved the compulsory retirement of non-employees, such as partners of legal and other professional practices where enforced retirements always had to be justified. For instance, in the recent case of Seldon v Clarkson Wright & Jakes and Secretary of State for Business Innovation and Skills [2010] EWCA Civ 899, the Court of Appeal approved an employment tribunal's decision requiring partners in a solicitors’ firm to retire at age 65 was justified; it was a proportionate means of achieving the legitimate aims of providing assistant solicitors with the opportunity for promotion and also workplace planning. While those types of grounds may provide justification in other cases, the particular circumstances of each employer and the particular age of enforced retirement chosen will clearly be subject to very close scrutiny.

It may be that, once the new regime is in force, there will be a rise in dismissals for capability linked to declining performance due to age, where employers do not rate their prospects of justifying a more generic compulsory retirement age. However, such dismissals could still be open to challenge as age discriminatory if in fact the view of capability taken was based on assumption rather than good evidence of a reduction in ability.

Ultimately, the removal of the ability to effect compulsory retirements without justification is not all doom and gloom; employers will be freed from the current statutory retirement process and will still be able to fairly dismiss older employees for retirement or capability if there is good reason.

Practical steps

 Assuming that the Government’s proposals are seen through, employers now have 7 months before the new provisions are introduced.

Clients are advised to review their current workforce and consider whether there are employees who could be issued with notice of intended retirement at some point up to 6 April 2011 to take effect before 1 October 2011 and, if so, whether they do wish to retire such employees. If so, clients should put the wheels in motion now.

Clients are also advised to now begin the process of reviewing their relevant policies and procedures for handling retirement issues. In particular, clients should consider in what circumstances, for what reasons, for what staff and at what age they believe they will need to effect compulsory redundancies and take appropriate advice on their likely prospects of succeeding on justification arguments.