Retirement of the Default Retirement Age - December 2010

Age UK has been pushing for reform of the retirement regulations and the decision in the Heyday case, which Age UK brought in 2009, indicated that the default retirement age of 65 was very likely to change, writes Gareth Edwards.

The government was faced with two options: either to change the default retirement age to a later age, or to have no default retirement age at all. They’ve chosen the second option and from October 2011, the government proposes that the default retirement age will be abolished.

The removal of the default retirement age will create uncertainty for employers. Like the government, they have two options. Some employers, notably B&Q, Nationwide, BT and M&S already have no retirement age. Alternatively, employers can decide to set their own compulsory retirement age.

However, if they do they will need to justify it by showing it as a proportionate means of achieving a legitimate aim. This is going to be a difficult task and no doubt there will be a number of cases which will cause uncertainty and costs for employers.

Whilst the current regulations with the default retirement age of 65 have allowed employers to dismiss employees when they reach 65, without having to pay redundancy or make any other payments, the current regulations do allow employers to plan their workforce requirements with some certainty and encourage younger employees to stay in order to obtain promotion.

The retirement age also avoids the potential unpleasant task of managing older employees who are becoming less capable in their roles.

Their own
For these reasons many employers will want to have their own compulsory retirement age. The alternative is to have no retirement age and wait for employees to come to their own decision to retire, or manage the workforce carefully and deal promptly and reasonably with any performance or capability problems.

Employers do not have that much time to prepare for the proposed changes. Although the government plans for the default retirement age to be abolished in October 2011, it will also be abolishing the current statutory retirement procedures that require an employer to give an employee six months' notice of their impending retirement.

This means there will need to be transitional arrangements in place by April 2011. The government will be consulting on what procedures, if any, to put in place of the current statutory retirement procedures.

Employers will be free to set their own compulsory retirement age providing they can objectively justify the age, but for some employers this might be an easier task than for others. They will now be faced with a difficult task of deciding whether to have their own compulsory retirement age, and if they do decide to have a retirement age, they will need to have good evidence to show that their choice of age is justified.

In its consultation paper the government seems to accept that it’s a difficult task to demonstrate that a retirement age is objectively justified. 

Decision
Helpfully, the Court of Appeal has very recently given its decision in a retirement case - Seldon v Clarkson, Wright & Jakes - which sets out some interesting guidelines.

It doesn’t concern the retirement of an employee, but of a partner in a firm of solicitors. Partners are not subject to the default retirement age and therefore partnerships under the current regulations already face similar challenges to those which employers will face once the default retirement age is abolished.

Mr Seldon, under the partnership agreement with his partners, agreed that partners would be compulsorily retired at 65. Mr Seldon, however, when it came to his retirement, objected to this and wanted to work beyond 65.

Having been retired he brought a claim for age discrimination. To defend the claim successfully the partnership had to show that they were justified in having a compulsory retirement age of 65.

The case was first heard at an Employment Tribunal. The tribunal decided in the partnership's favour and held that the compulsory retirement age had three legitimate aims which were:

1. Ensuring Associates (senior solicitors who are not yet partners) were given the opportunity of partnership after a reasonable period.

2. Facilitating the planning of the partnership and workplace by having a realistic long term expectation of when vacancies will arise.

3. Limiting the need to expel partners through performance management, thus contributing to the congenial and supportive culture in the firm.

Mr Seldon appealed to the Employment Appeals Tribunal. The EAT upheld the original tribunal's decision on the first two aims. Mr Seldon then appealed to the Court of Appeal. The Court of Appeal upheld all three points.

Compulsory retirement
Many employers will want to have a compulsory retirement age. The government proposal creates great uncertainty for them and the prospect of expensive disputes with employees challenging the employer's choice of retirement age and the decision to retire them, which will be a dismissal and open to challenge like any other dismissal.

The Seldon case does, however, provide some useful pointers for employers, including the need to allow employees to step into dead men's shoes, the need to create a happy workplace and allow people to retire with dignity.

We do not yet know precisely what procedure the employer will need to follow in place of the Statutory Retirement Procedure if the employer decides to have a compulsory retirement age. The procedure will undoubtedly have to be a fair procedure, but we await guidelines on the likely timetable that should be followed and the points to be considered in any consultation with the individual retiring employee.

Perhaps surprisingly, the previous government did not introduce a framework of flexible working which might have allowed employees to request to work reduced hours so that they could move gradually towards retirement.

The new government, in its consultation document, however, has said that it will consider possible government action on how employees and employers might be encouraged to discuss potential flexible working arrangements and options for flexible working with the aim of extending working lives.

This is a very important change in the law for employers, and if you wish to take part in the government's consultation, you can reply online at surveymonkey.com/s/2VWVDNDAlternatively, you can obtain a copy of the consultation response form at bis.gov.uk/retirement-age