UK: Age Discrimination And The Abolition Of The Default Retirement Age

Last Updated: 15 October 2010
Article by Alan Julyan

The introduction of the age discrimination legislation in 2006 by the Labour Government was a major step in eliminating age discrimination in the workplace. However, the decision to introduce a default retirement age of 65 (DRA) to allow employers to force employees to leave at that age regardless of their wishes was a major block on the attempt to change attitudes towards older workers. The Government argued that the consultation process that the employer had to follow to secure the protection of the DRA would lead to a positive dialogue between employer and employee and as a result a change in attitude toward older workers. The Government pledged that if this did not happen it would review the decision to adopt a default retirement age in 2012.

Many commentators felt that the Government was wrong to have given employers an opportunity of side stepping the primary purpose of the legislation. The only effective way of challenging the decision was to argue that the Government had failed to implement Article 6 of the European Framework Directive under which our age discrimination legislation had been introduced. A challenge was duly made by Age Concern UK but in 2009 the European Court, and then the Court of Appeal, held that the Government had established legitimate "employment policy, labour market and vocational training aims" and that the DRA was a proportionate means of achieving those aims, and therefore justified.

As a result it appeared that employers could continue to retain a normal retirement age (NRA) of 65 in contracts of employment. It remained the case that any retirement age below 65 could be challenged and employers would have to show reasons why the age chosen could be objectively justified. However, the evidence showed that employers were entering into a positive dialogue with employees about them continuing in employment beyond the NRA and further that a growing number were being retained in employment. Nevertheless, many employees were not being retained. So the Coalition Government's early decision to consult about the proposed abolition of the DRA will be welcomed by employees although employers may be concerned as to the impact on future employment practices.

So what are the implications for employers? It seems certain that the DRA will be abolished with effect from 1 October 2011.

Transitional arrangements will allow employers to force employees to retire who will be 65 before 1 October 2011 provided that:

  • notice of intended retirement is given before April 2011
  • the employer follows the statutory request procedure.

Employers will only be able to retain a normal retirement age of 65, or any other age, if they can show that the chosen age is objectively justified. It is likely that the Government will propose that even if a retirement age can be objectively justified, retirement at that age will only be fair if the employer's decision follows a fair procedure during which the employee's wish to continue working is properly considered (although the current consultation process will not be retained).

If there is no express retirement age expressed, any decision to terminate an employee's employment on age grounds will be unfair. If an employee is to be dismissed then the normal rules will apply to establish whether the dismissal is fair or unfair.

What issues need to be clarified by the consultation process?

What is not clear is how employers will be able to cope with some of the recognised but unresolved consequences of this change. The Government is seeking views on how some of these issues can be resolved, in particular:

  • How will employers be able to maintain employee benefits for older workers? In practice the provision of such benefits is expensive or in some cases impossible to secure as most insurance providers recognise the dramatic increase in the risk profile of workers over 65. If not addressed, the impact may be their employers seek to minimise the risk by withdrawing group insured benefits (which provide reasonably priced benefits) from all workers and substituting cash payments to avoid claims of discrimination or substantial increase in funding requirements to ensure continuation of cover.
  • Employers will have to review other employment arrangements to assess the impact of the loss of the "retirement" category as a clear example of a good leaver. For example share option schemes often provide that a person retiring can be treated as a good leaver so triggering the vesting of benefits under the scheme whereas someone leaving voluntarily at a younger age might lose the accrued benefits under the scheme.

Other issues that employers may face are:

  • How best to manage workforce and succession planning. Discussions with employees about their future intentions may be difficult to shield from an allegation that any discussion prompted by the employer is clearly evidence of prejudice against older workers.
  • How diversity training deals with age related issues. Employers will be well advised to train their staff to avoid making unwarranted assumptions about older workers and their intentions. Clearly, fewer employees want to leave the workforce at 65 and everyone must recognise this is the case. For example, employers may not be able to refuse requests for training from older workers.
  • If there is no retirement age, then employers will have to look more carefully at how they are going to deal with performance management issues leading to termination. Older employees may challenge the way in which their performance is being managed. In order to avoid age discrimination claims, older employees will have to be treated fairly to minimise the risk of claims. The Government intends to issue guidance on how to manage dismissal where there is
  • Compensation for loss of future income in employment related claims may be difficult to judge when there is no NRA. At present there is usually an assumption that loss will end at age 65. This clearly will no longer apply. It is likely to be assumed that older workers will still find it easier to stay in their current work rather than finding new work. The result could be open ended periods of assumed loss although employers may wish to adduce complex evidence relating to forecasts of when employees might be assumed to want to retire and/or be medically unfit to continue to work.
  • Enhanced redundancy schemes will need to be reviewed and if there is a cut off age of 65 this will not be justified unless the employer can justify the retirement age.

Can employers still state an age when employees will be asked to retire?

The biggest single decision many employers will face is whether to retain any retirement age in the contract of employment at all. Can the age chosen be justified and if so be treated as an employer justified retirement age? If it cannot be justified should it be jettisoned and employees allowed to make their own decisions as to when they want to cease to work.

The recent Court of Appeal decision of Seldon v Clarkson Wright and Jakes upheld the decision of the Employment Appeal Tribunal that a rule requiring a partner in a law firm to retire at 65 was a proportionate means of achieving a legitimate aim. (Self-employed partners were not covered by the DRA regime expressly allowing such a forced retirement age). The key point that emerged from this decision was that the employer could have its own NRA as long as it could show the NRA was a proportionate means of achieving a legitimate aim. This does give employers some hope that retirement ages in contracts can be defended. Anecdotal evidence suggests that employers are already allowing employees to remain in employment as the current consultation process results in an objective and honest review of what value the employee can contribute even though they have passed an age that previously signalled the end of their working life.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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