Retirement - plans for the future?
23 November 2010
This article was included in the November 2010 issue of
People - the Employment and Pensions
Employers are not generally permitted to discriminate against
employees on the grounds of age. As an exception, legislation
currently permits the compulsory retirement of employees at or
above the age of 65, which is known as the default retirement age
(the “DRA”). For a dismissal to be fair, employers must follow a
procedure, which includes giving employees notice of their
intention to retire them. But this is all about to change...
The new coalition Government is now looking at abolishing the
DRA. If this happens, employers will not be able to retire
employees against their will unless retirement can be objectively
justified. Objective justification requires the employer to
demonstrate that retirement is a proportionate means of pursuing a
In the recent EU law case of Rosenbladt v Oellerking
Gebäudereinigungsges. mbH, the Court of Justice decided that
the automatic termination of an employee’s contract at the age of
65 did not amount to age discrimination. At first glance, this case
would appear to give hope to a UK employer operating compulsory
retirement clauses for its workforce. In reality, this is unlikely
to be of assistance. The case centred on German national rules,
enabling an employer and trade union to adopt such a clause as part
of a collective agreement. Effectively, the Court endorsed the
German national rules because they underpinned Germany’s social
policy of providing job opportunities for the young and alleviating
strain on the labour market. (For further information about the
German approach to retirement ages, please click here to read an article by
Swen Schöne, from our Hamburg office.) In the absence of the
DRA, there will be nothing comparable to this in UK law.
In the UK
Back in the UK, the high profile Heyday challenge paved
the way for the Government's proposals to abolish the DRA.
Following this landmark case, retirement ages have not been far
from the headlines. For example, the Court of Appeal decided
earlier this year in Seldon v Clarkson Wright & Jakes
that a rule under a partnership deed of a law firm providing for
the retirement of partners at age 65 did not amount to age
discrimination. As partners are not employees, the DRA was not
applicable and it was necessary to consider objective
justification. The Court accepted the aims of the law firm, which
included providing employees with the opportunity of partnership
after a reasonable period, were legitimate and the use of a
compulsory retirement age to achieve it proportionate.
In reaching its decision, the Court of Appeal noted that the
legitimate aims of an employer must be consistent with the
Government’s social policy. In setting the DRA, it was said that
the Government’s social policy was to provide better prospects of
employment and promotion for young people.
However, if the DRA disappears, it may be more difficult for an
employer to show its legitimate aims are consistent with the
Government’s social policy. In its consultation document,
Phasing out the Default Retirement Age, the Government
advocates removing the DRA to allow people to work longer, which it
considers will boost the economy and be fairer for older employees
who would otherwise be forced to retire. This perhaps suggests a
different social policy to that which gave rise to the DRA.
The key proposals are as follows:
- Retirements using the DRA would cease completely on 1 October
2011 and employers would be unable to issue new notifications of
retirement using the DRA on or after 6 April 2011;
- There would be a six month transitional period (from 6 April
2011 to 1 October 2011) so that retirements that were already in
progress could continue through to completion, provided that a
notification of retirement is issued prior to 6 April 2011, the
date of retirement falls before 1 October 2011 and all requirements
of the DRA procedure are met.
- Although the Government is proposing to remove the DRA, it
would still be possible for employers to operate a compulsory
retirement age, provided they can objectively justify it.
Based on the recent case law, it appears that an employer may
have a better chance of objectively justifying compulsory
retirement where it:
(a) considers whether its business needs make it appropriate to
have a retirement age specific to its sector and/or different
groups of employees;
(b) consults its workforce on its proposed retirement age;
(c) is able to enter into collective agreements on retirement
with trade unions; and
(d) provides for good quality pension packages to its workforce
as compensation for retirement.
However, this is not guaranteed. Even if objective justification
of compulsory retirement is possible, there are still risks for the
employer. An employer might decide that it should have a lower
retirement age for its white collar compared with its blue collar
workers because there is greater competition for white collar jobs.
But this might, for example, create the risk of separate sex
The consultation also suggests that an employer will no longer
be able to fairly dismiss an employee by reason of retirement. So
if an employer escapes a claim for age discrimination, it may still
face a claim for unfair dismissal unless it can show another fair
reason for dismissal (for example, capability or "some other
substantial reason"). This gives rise to other difficulties. In
particular, it remains to be seen how employers will be able to
approach retirement discussions in practice, without fear of
potential claims. One of the suggestions in the consultation is to
introduce additional guidance or a code of practice to encourage
dialogue between employers and employees about retirement
We do not yet know the outcome of the Government consultation.
The Department for Business, Innovation and Skills has, however,
provided some indication of the likely timescales. This confirms
that the Government intends to develop and refine guidance for
employers and individuals, working with ACAS, from November 2010
until September 2011 and will draft regulations to remove the DRA
and lay them before Parliament by April 2011.
Many employers will feel that both the timescales,
notwithstanding the transitional arrangements, are particularly
short, given the impact this will have on the workforce. Employers
are therefore advised to start considering how the absence of the
DRA may affect their organisations now. Many employers will need to
move quickly to implement the outcome of the Government's
consultation so watch this space...