How old is too old?

The Supreme Court’s judgment in Seldon v Clarkson Wright & Jakes [2012] UKSC 16 was eagerly awaited by lawyers and employers alike. It was hoped that some much-needed guidance would be provided on the thorny issue of compulsory retirement, particularly in light of the abolition of the default retirement age for employees last year.

The headline news is that the Supreme Court dismissed Mr Seldon’s appeal and, in doing so, confirmed that the mandatory retirement age contained in the partnership agreement of his former firm Clarkson Wright & Jakes (CWJ) could be objectively justified, despite it constituting an act of direct age discrimination.

The story so far

In an article (Journal, September 2010, 12) we commented on Mr Seldon’s journey through the courts which, at that time, had seen the Court of Appeal finding in CWJ’s favour. By way of reminder, after 34 years with CWJ, Mr Seldon was compulsorily retired (in the December following his 65th birthday) in accordance with CWJ’s partnership deed. After CWJ declined Mr Seldon’s offer to continue working with them on a consultancy basis, and enforced his retirement, Mr Seldon raised an employment tribunal claim asserting that he had been subjected to an act of direct age discrimination (protection from which extends to partners in addition to employees).

It was never disputed that Mr Seldon’s compulsory retirement constituted such an act: there are few clearer examples of less favourable treatment on the grounds of age in a workplace context. In order for CWJ to successfully defend Mr Seldon’s claim, it had to persuade the courts that the compulsory retirement age could be objectively justified as a proportionate means of achieving a legitimate aim.

At the employment tribunal, CWJ successfully argued that the following three aims were legitimate, and that a compulsory retirement age of 65 was a proportionate means of achieving them:

ensuring associates were given the opportunity of partnership after a reasonable period;

facilitating the planning of the partnership and workforce across the individual departments by having a realistic long-term expectation as to when vacancies would arise; and

limiting the need to expel partners by way of performance management, thus contributing to the congenial and supportive culture in the firm.

Mr Seldon appealed to the employment appeal tribunal (EAT) and then the Court of Appeal, with both courts ultimately endorsing the aims that had been accepted by the employment tribunal.

Issues for the Supreme Court

Mr Seldon appealed to the Supreme Court, which was tasked with considering the following three issues:

whether the three aims had been correctly categorised as legitimate;

whether the justification exercise related solely to the compulsory retirement clause or, additionally, its application to Mr Seldon individually;

whether the clause in question was a proportionate means of achieving the aims identified by CWJ.

The Supreme Court dismissed Mr Seldon’s appeal, holding that the aims identified by CWJ were legitimate and, more than that, were aligned with acceptable social policy objectives.

In relation to the second issue, it was confirmed that, where a mandatory retirement age is justified as being a proportionate means of achieving a legitimate aim, this will generally be all that is needed to justify its application to specific individuals.

On the third appeal point, in line with the earlier directions of the EAT and the Court of Appeal, the Supreme Court directed that the case be remitted back to an employment tribunal, to determine whether 65 was a proportionate way of achieving the third aim of collegiality. (Notably, the Supreme Court also gave the employment tribunal leave to consider the question of proportionality for all three aims, but reminded the tribunal that this question should be considered in the context of the law as it stood in 2006, when the default retirement age for employees was still in force.)

Practical guidance

The Supreme Court’s judgment provides some helpful guidance to partnerships (and employers) debating whether or not to maintain (or introduce) a mandatory retirement age. Contrary to the message conveyed by some media, successfully justifying compulsory retirement of partners (or employees) is no easy task. That said, Lady Hale’s leading judgment provided some useful guidance, which can be distilled into the following three steps:

Step 1: aims

It is clear that step 1 in any justification exercise is to identify the aim (or aims) the law firm (or employer) is trying to achieve. The Supreme Court confirmed that, unlike the test for indirect discrimination, it is not enough for these aims to be relevant solely to the particular employer or partnership in question (for example, reducing costs). The aims must be social policy objectives (such as those related to employment policy, the labour market or vocational training), and be of a public interest nature.

Helpfully, Lady Hale summarised the key European decisions on the issue of social policy objectives in the context of direct age discrimination claims. Two clear objectives were identified: inter-generational fairness, and dignity.

The following aims were identified (from a review of the relevant European case law) as being capable of meeting step 1 of the test:

promoting access to employment for younger people;

efficient planning of the departure and recruitment of staff;

sharing out of employment opportunities fairly between generations;

rewarding experience;

avoiding disputes about an employee’s fitness for work over a certain age; and

avoiding the need to dismiss employees on capability grounds which may be humiliating for the employee concerned.

These aims were all found to relate either to inter-generational fairness or dignity.

Step 2: legitimacy in context

Once a partnership (or employer) is comfortable that legitimate aims have been identified, the next key question is whether such aims are legitimate in the context of the particular organisation in question.

It is at this stage of the justification exercise that partnerships (and employers) should be careful not to take a “one size fits all” approach, naively relying on the success of CWJ’s aims to justify their own mandatory retirement age. The Supreme Court’s decision indicates that firms should not profess an aim of ensuring dignified retirement for partners, if they already have a sophisticated performance management policy in place. Similarly, firms intending to rely on the aim of promoting access to employment for younger people should be warned against doing so if they, as a matter of fact, have no difficulty in recruiting, and providing access to employment (or partnership opportunities) for, younger people.

The importance of this step should not be underestimated. It is likely that employers who fail meaningfully to consider this aspect of the test will find themselves in difficulty in the event of a challenge to their choice to maintain, or introduce, a compulsory retirement age.

Step 3: proportionality

Identification of a legitimate aim is not the end of the justification test. To successfully defend a claim of direct age discrimination, it will be necessary to show that the chosen retirement age is a proportionate means of achieving each aim identified. In other words, the retirement age must be appropriate and necessary to achieve the aims.

We know from other case law that the question of proportionality involves a determination of whether there are other, less discriminatory, measures which could achieve the same aim. In the context of a mandatory retirement age, this may lead to a rather cyclical argument with disgruntled employees or partners asking why a higher age of 67 or 70, for example, could not been chosen.

Lack of clear guidance on this final step is perhaps the sting in the tail of the Supreme Court’s decision. The default retirement age (DRA) of 65 (for employees at least) historically provided employers with a tangible cutoff point for retirement. To a certain extent, partnerships will no doubt also have relied on the DRA as potential justification for mandatory retirement ages of 65 (or over) in the past. With the abolition of the DRA, a fresh focus will likely be placed on the reason for a particular age being chosen. While the employment tribunal’s decision on the question of proportionality in the context of Mr Seldon’s retirement will be interesting, arguably its relevance will be limited due to the radically different legal landscape within which retirement now sits.

Further guidance

At the same time as the Supreme Court issued its judgment in Mr Seldon’s case, it also handed down its decision in Homer v Chief Constable of West Yorkshire Police [2012] UKSC 15, which concerned the related issue of indirect age discrimination.

In this case, the Supreme Court confirmed that a requirement for legal advisers within the police force to have a law degree in order to progress to the highest grade within their team, did constitute indirect age discrimination. This was because the requirement put those within Mr Homer’s age group at a disadvantage (he was too old to attain the degree before he reached the then compulsory retirement age). The Supreme Court decided to remit the question of justification to an employment tribunal. However, it helpfully confirmed that one of the key parts of the proportionality test should be a comparison exercise between the importance of the aim to the employer (or partnership) and the discriminatory effect on the group or individual in question.

This balancing exercise is no mean feat for employers and partnerships. The discriminatory effect of mandatory retirement is clear: the relationship (whether it be employment or partnership) is terminated, with a resultant and immediate financial loss. Therefore, arguably, only very important aims will be likely to tip the balance in favour of the employer or partnership.

Implications

It is clear from the Supreme Court’s decision that mandatory retirement ages are capable of being justified. This should not be interpreted as a green light for employers and law firms to rely on historic compulsory retirement ages (no doubt linked to the existence of the DRA), or to introduce a compulsory retirement age in reliance on CWJ’s successful defence of Mr Seldon’s case.

For law firms, step 1 of the test is perhaps the easiest to achieve. It is doubtful that there would be many firms who would not want to ensure associates are given the opportunity of partnership, to facilitate workforce planning; and/or to create a collegiate culture. However, steps 2 and 3 will be tougher hurdles to overcome. Firms which have sophisticated recruitment and employment policies may already have a diverse workforce and therefore less difficulty in achieving inter-generational fairness. Similarly, a dignified exit can arguably be achieved through sensitive performance management processes which are already in place without regard to age.

Perhaps the most difficult issue for all employers, not just partnerships, will be determining the right age (if any) for mandatory retirement. When challenged, how will partnerships and employers be able to argue successfully that there is no less discriminatory way of achieving their stated aims? Could inter-generational fairness be achieved through other methods, such as well-implemented equality and recruitment policies? Furthermore, is the notion that performance declines with age simply too stereotypical and outdated to be sustained in the first place? The Supreme Court certainly had some difficulty with this concept, which should be interpreted as a note of caution to organisations seeking to rely on this premise as a rule.

What next?

The question for employers and partnerships is clear: do they have aims that are sufficiently legitimate to justify mandatory retirement? If the answer is “yes”, the next (and perhaps more challenging) question is “how old is too old?” Leaders within such organisations will need to give serious consideration to, and articulate the reasons for, a decision to enforce retirement at a particular age. The policy should then be communicated to employees and reflected in partnership and LLP members’ agreements. While these decisions are by no means easy, employers and law firms currently considering their retirement policies should take heed of the messages conveyed by the Supreme Court in Mr Seldon’s case.