The ECJ has given its judgment in the case concerning compulsory retirement, known as the Heyday appeal. In this edition of Employment Highlights, we look at the decision and the immediate impact and implications that the judgment will have.

Background

The UK Government transposed the EC Equal Treatment Framework Directive (No 2000/78) (the Directive) by adopting the Employment Equality (Age) Regulations 2006 (the Age Regulations). The Age Regulations prohibit discrimination on grounds of age as regards employment. One exception to this is that any dismissal of a person at or over the age of 65 where the reason for the dismissal is retirement shall not constitute discrimination on grounds of age (regulation 30). Effectively, this creates a national default retirement age, although employees can request to work beyond that age.  

The National Council on Ageing, which operates under the names of Heyday and Age Concern, sought judicial review of the Age Regulations. Age Concern argued that by including a compulsory retirement age, the Government has failed adequately to implement the Directive. In addition, Age Concern argued that the general defence of justification which applies to both direct and indirect age discrimination does not properly implement Article 6(1) of the Directive because it does not include a specific list of the kinds of differences of treatment which may be justified. The Age Regulations merely provide in a general manner that a difference of treatment on grounds of age is not discrimination if it is a proportionate means of achieving a legitimate aim.  

In December 2006, the High Court determined that the issues raised by the judicial review application should be referred to the ECJ for a preliminary ruling.  

Questions referred to the ECJ

The following questions were accordingly referred to the ECJ in July 2007:  

  1. Does the scope of the Directive extend to national rules which permit employers to dismiss employees aged 65 or over by reason of retirement?
  2. Does the scope of the Directive extend to national rules which permit employers to dismiss employees aged 65 or over by reason of retirement where those rules were introduced after the Directive was made?
  3. In light of the answers to 1 and 2 above, are the provisions which lay down retirement ages in the UK within the meaning of recital 14 of the Directive? (Recital 14 excludes from the scope of the Directive “national provisions laying down retirement ages”.)
  4. Does Article 6(1) of the Directive permit Member States to introduce legislation providing that a difference of treatment on grounds of age does not constitute discrimination if it is a proportionate means of achieving a legitimate aim, or does Article 6(1) require Member States to define the kinds of difference of treatment which may be so justified by a list similar in form and content to Article 6(1)?
  5. Is there any, and if so what, significant practical difference between the test for justification set out in Article 2(2) of the Directive in relation to indirect discrimination and the test for justification set out in relation to direct age discrimination in Article 6(1) of the Directive?

ECJ decision

The Advocate General delivered his opinion in relation to the questions in September 2008. The ECJ has now issued its judgment which essentially follows the Advocate General’s opinion. Effectively, the judgment establishes that the UK default retirement age, in principle, is capable of justification, but the matter now has to return to the UK High Court to determine whether the relevant provisions of the Age Regulations are in fact justified by legitimate aims within the meaning of the Directive and whether the means used to achieve those aims are “appropriate and necessary”.

Do the rules fall within the scope of the Directive?

Looking at the first of the three questions raised before the ECJ, the ECJ followed its earlier decision in the case of Palacios de La Villa v Cortefiel Servicios SA. Recital 14 of the preamble to the Directive excludes from its scope national measures setting retirement ages. However, the Court has held that this does not extend to measures governing the conditions for termination of employment where the retirement age is reached. The Age Regulations adopted in the UK do not create a mandatory scheme of automatic retirement, but instead lay down conditions under which an employer may derogate from the principle prohibiting discrimination on grounds of age and dismiss a worker because he has reached retirement age. The Age Regulations should therefore be regarded as establishing rules relating to “employment and working conditions, including dismissals and pay” within the meaning of Article 3(1)(c) of the Directive and so coming within the scope of the Directive.

Justification defence - what amounts to a legitimate aim?

Considering the fourth question, the ECJ considered whether Member States are required to specify the kinds of differences of treatment on grounds of age which are not covered by the principle of non-discrimination. Age Concern argued that since Article 6(1) refers to a list of objective and reasonable justifications, Member States should have transposed such a list into their national law. The ECJ held that the transposition of the Directive into national law does not require Member States to draw up a specific list of differences in treatment which may be justified by a legitimate aim. However, the national court must be able to ascertain whether the legislation at issue is consonant with one of the aims considered legitimate by the Directive and whether the means chosen are appropriate and necessary to achieve those aims. This involves considering whether they are covered by a social policy objective such as one relating to employment policy, the labour market or vocational training. These are aims of a public policy nature rather than aims related to the particular circumstances of the employer such as business needs or cost cutting.

Although the ECJ said that Member States enjoy broad discretion in choosing the means capable of achieving their social policy objectives, it did add that mere generalisations concerning the capacity of a specific measure to contribute to employment policy, labour market or vocational training objectives are not enough to show that the aim of that measure is capable of justifying derogation from the principle of non-discrimination. In essence, therefore, the national court must ascertain whether the imposition of the default retirement age pursues a legitimate aim in accordance with a matter of social policy and whether the means chosen are appropriate and necessary to achieve that aim.

Distinction between justification of direct and indirect discrimination

Unlike other forms of discrimination, it is possible to justify both direct and indirect discrimination pursuant to the Age Regulations. However, the final point raised by Age Concern in the case was that the justification defences provided for in the Directive and the Age Regulations are slightly different. In Article 6(1) of the Directive, which refers to the justification of direct discrimination, the derogations which are allowed are measures which are justified as being “objective and reasonable”. However, Article 2(2)(b) relating to indirect discrimination does not include the words “reasonable”. Therefore, Age Concern argued that the justification for direct discrimination is subject to a higher standard of scrutiny. The UK Government submitted that the use of the words “reasonably” and “objectively” should not be considered significant as it would be inconceivable that a difference in treatment could be justified by a legitimate aim and achieved by appropriate and necessary means, but that the justification would nevertheless not be considered reasonable.

The ECJ held that no particular significance should be attached to the fact that Article 2(2) of the Directive does not refer to the reasonableness of the justification. The clear distinction between the two provisions relates to who has to provide the justification, its nature and how it is to be evidenced. The ECJ did go on to say however that Article 6(1) does impose on Member States the burden of establishing to a high standard of proof the legitimacy of the aim relied on as a justification.

What does this mean for employers?

The case will now be considered by the High Court in light of the answers to the questions referred to the ECJ. The High Court must determine whether the default retirement age set out in Regulation 30 is an appropriate and necessary means of pursuing a legitimate aim. The High Court will therefore have to consider the aim in terms of social policy and the Government will need to provide evidence to back up its decision that retirement at 65 is an appropriate means of achieving a legitimate aim. Although the High Court could declare the default retirement age void, this seems unlikely. No date has yet been set for the hearing and it may not take place for several months.

In November 2007, the President of the Employment Tribunals issued a Practice Direction ordering that all cases involving regulation 30 of the Age Regulations be stayed. Since the ECJ’s decision has not clarified the position finally, it is unlikely that the position will change until the High Court has reached its decision.

For public sector bodies there is an additional complication in that the Directive may be considered to be directly binding and therefore have direct effect on such employers. Employees of public sector employers may therefore be able to bring a claim based on the Directive despite the fact that the employers are complying with UK regulations.

Under current UK law, employers may continue to impose the default retirement age on employees in accordance with the Age Regulations. However, there is a risk that the High Court may decide that the default retirement age is void and consequently that the employer has acted unlawfully. Employers would therefore be at risk if the employees bring claims within the relevant time period. However, employers may be able to justify the discrimination. To do so, they must be able to show that the discrimination was in line with a social policy aim rather than a specific business requirement. Employers should therefore review any policies or provisions to check whether they are able to justify any such direct discrimination.

The Government has indicated that the default retirement age will be reviewed in 2011. There is now a call for it to be reviewed earlier and for the Government to issue guidance as to what it considers to amount to social policy objectives for the purposes of objective justification.