Retiring the default age

On 1 March 2011, the Department of Business, Innovation & Skills published the revised draft Employment Equality (Repeal of Retirement Age Provisions) Regulations 2011 (“the 2011 Regulations”) which are said to be designed to bring about the abolition of the Default Retirement Age (DRA), which is set at 65, in October 2011. This is possibly the most significant change to employment law for some time and will have wide-ranging effects for our clients and indeed the profession.

Because of the way in which the transitional provisions are proposed to work, employers need to consider how they are going to deal with the change to the law quickly, and the current law will also potentially still have an (albeit limited) effect until October 2012.

Current law

As practitioners know, the current law is a complex combination of several pieces of legislation. The foundation is the Equality Act 2010, which sets out the legal protections afforded under the protected ground of “age” and specifically sets out exceptions to the usual prohibitions. In particular, both direct and indirect discrimination on the grounds of age are potentially permitted, provided the treatment or provision, criterion or practice can be shown to be “a proportionate means of achieving a legitimate aim” (ss 13(2) and 19(2)).

Dismissing an employee because of their age (e.g. forcing them to retire) is inherently discriminatory, but in general the law provides a dispensation in the case of an employee who has reached the greater of the DRA or the employer’s normal retirement age (whichever is the higher age is referred to here as the “normal retirement age”). For most employers the normal retirement age will be 65, but this is worth checking so as not to fall foul of the law.

Currently, the 2010 Act, sched 9, para 8 states that it will not be age discrimination for an employer to dismiss an employee who had reached the normal retirement age if the reason for the dismissal is “retirement”. Whether the “retirement” criteria are met depends on compliance with sched 6 to the Employment Equality (Age) Regulations 2006 and Part 10 of the Employment Rights Act 1996.

The actual process requires an employer to notify an employee at least six (but not more than 12) months in advance that the employer wishes the employee to retire, provided the employee will have reached the normal retirement age by that date. (Getting the date wrong, and retiring the person early, even by one day can have dire consequences: e.g. Plewes v Adams Pork Produce Ltd ET/2600842/07.) The employee has the right to formally request the right to work beyond this date and the employer must consider such a request: the process is set out in the 2006 Regulations. An employer does not need to accept the employee’s request, and provided the correct procedural steps are taken, the subsequent dismissal will be deemed fair.

Short notice provisions exist (sched 6, para 4) which allow an employer to give less than the six months’ notice (but not less than 14 days). Notice in such circumstances may still attract the statutory protections, but an employer will have to pay an employee up to eight weeks’ pay in compensation for failing to give at least six months’ notice.

A retirement age of less than the DRA (or retiring someone before the normal retirement age) is potentially discriminatory unless it can be objectively justified under the Equality Act. Breaching the law can be very expensive and can also lead to adverse publicity. The position with self-employed individuals (e.g. partners in law firms) is different, as they are not employees and therefore the changes to the DRA will not affect them directly. However, the case law on how self-employed individuals are treated and what is deemed to be discriminatory will become increasingly relevant for employees in this context.

The new law

In terms of the 2011 Regulations (as currently drafted and still subject to parliamentary approval), the DRA and associated provisions will be abolished. On the basis of the current drafting and depending on the age of their employees as at 30 September 2011, there are various permutations:

If the employee is due to retire on or before 5 April 2011

Provided the correct statutory notice process has been followed already, the question is then, when is the employee to retire? If they are due to retire on or before 5 April 2011, the employee can be legally “retired” and the law will deem the dismissal “fair”. Essentially the matter is resolved before the 2011 Regulations take effect.

If the employee reaches the normal retirement age before 30 September 201 and has not retired by 6 April 2011

The transitional provisions will apply. The current procedure can be triggered, although this must be started on or before 5 April 2011. The termination (if the process is followed correctly) will not be deemed to be discriminatory. The employer does not need to require the employee to retire on the employee’s normal retirement age, and can delay the retirement date provided that not more than one year’s notice is given (in line with the current law). The effect of this is that the latest date on which retirement can be scheduled is 4 April 2012 (if notice were given on 5 April 2011). However there are also provisions added to limit the timescale for an employee to ask their employer to be allowed to work beyond the intended retirement age. The effect of this is that a retirement under the transitional provisions could be delayed until (at the latest) 3 October 2012.

If an employee will reach the normal retirement age on or after 1 October 2011

The current procedure cannot be used as it will have been abolished and any dismissal on the grounds of retirement will need to be objectively justified.

Short notice provisions

As mentioned, there are current provisions which permit less than six months’ notice to be given (subject to a compensatory penalty) to an employee. These will be abolished on 6 April 2011. It is possible to serve a “short” notice on an employee (who is due to reach the normal retirement age on or before 30 September 2011), but this will need to be done by 5 April.

Depending on how late the notice is, it may be more cost effective to give a longer notice period and have the retirement date later rather than incur the potential penalty.

What of the future?

The impact of the changes will be significant. As well as having to decide how to deal with any employees who will reach the normal retirement age before October 2011, clients should also be thinking about how to manage the situation in the future. If an employer wishes to retain any “retirement age” which it intends to enforce, it must be able to justify that as “a proportionate means of achieving a legitimate aim”, otherwise it is likely to face a successful claim for age discrimination.

What will amount to a legitimate aim will be up to the courts. At present, there are a limited number of decisions on the issue of age discrimination and retirement (due to the current statutory provisions). More decisions can be expected over the coming years to determine the law and the extent of the potential defence.

At the moment, the guidance that the case law can provide is therefore limited. Indeed, the leading decision (Seldon v Clarkson Wright and Jakes (a partnership) [2010] EWCA Civ 899; [2010] IRLR 865) is currently under appeal to the Supreme Court and therefore the final legal position remains unclear. The case (discussed at Journal, September 2010, 12) does, however, provide some useful pointers. It involved a partner in a law firm who was forced to retire and who challenged the decision as discriminatory. Mr Seldon could bring a case as a self-employed person and therefore the current statutory dispensations regarding retiral of employees did not apply.

The firm sought to defend the claim on the basis that their policy regarding retirement was a proportionate means of achieving several legitimate aims. The tribunal (and the EAT) agreed to some extent, holding that several of the aims cited were indeed “legitimate”. In particular, it was legitimate to have the policy with the aim of ensuring that associates were given the opportunity of partnership after a reasonable period, and facilitating the planning of the partnership and workforce across individual departments by having a realistic long-term expectation as to when vacancies will arise (the so called “dead men’s shoes” aim). Secondly, limiting the need to expel partners by way of performance management, thus contributing to the congenial and supportive culture in the firm, was considered to be potentially a legitimate aim (the “congeniality” aim), albeit that in this case the EAT felt there was insufficient evidence to justify a finding that this aim had been satisfied.

The question of whether the policy is a “proportionate” means of achieving these aims is then relevant, and it is also worth noting that the Court of Appeal in Seldon stated that a single retirement age applied to an entire workforce will not necessarily be a proportionate means of achieving a legitimate aim. It will be necessary for employers to research and provide evidence to support both the reason for imposing a cut-off and the age at which that cut-off will operate. They should also be able to show that there is no less discriminatory way of achieving that aim.

Clearly, employers (and we as a profession) need to consider how the future will be handled, and the first step is to consider how older employees are to be dealt with. So what to do?

If the employer does have employees who will be 65 on or before 30 September and whom they wish to “retire”, the employer needs to follow the necessary statutory process to seek to benefit from the existing law.

If there are employees who will reach the normal retirement age after 30 September, the employer needs to consider how their ongoing employment will be handled. Clearly if an employee wishes to retire and a mutually acceptable date can be agreed, or if the employer is happy to have no “retirement” age, there is no issue. Matters can be resolved on a case-by-case basis.

If there are employees who will reach the normal retirement age after 30 September and the employer does wish to retain a “retirement” age, this will need to be objectively justified and, as Seldon shows, it is important that the aims for having such a retirement age are clear so that they can be stated and explained if required.

If the reasons are dependent on perceptions regarding the ability of older workers (i.e. as was part of the “congeniality” reason), appropriate independent evidence to substantiate the position should also be present. In Seldon the absence of such evidence before the tribunal meant the EAT was not willing to accept this ground as legitimate.

What will amount to a “legitimate aim” may be further clarified by the Supreme Court in due course, a decision (depending on the grounds of appeal) that may shape the law. The issue of proportionality of how the aim is achieved is also likely to be a hotly debated area until more definitive decisions are forthcoming.

What can we be doing?

Clients will be depending on us to explain the law and its implications to them.

We should be contacting our clients to assist them with resolving any outstanding (or potentially outstanding) issues concerning older employees in the short term, and helping them to plan for the new position which will take force from 1 October 2011.

In addition, from the profession’s point of view, we may also be wise to review our own internal positions to ensure that we do not fall foul of the law, either with our employees or among partners.