Following the recent Government announcement that it is scrapping the default retirement age of 65, Peter Jones in our Employment Team considers some of the issues that employers will soon need to address.
What are the key Government proposals?
As things stand, employers can lawfully retire employees on or after age 65 (or the employer’s other ‘normal retirement age’) provided that they are given at least 6 months (and no more than 12 months) notice of the intended retirement date and a formal ‘right to request’ procedure has been followed. Under the proposals, employees reaching age 65 on or after the new law comes into full effect (on 1 October 2011) will not be capable of being fairly retired unless retirement can be objectively justified. Justification of age discrimination is, at best, an uncertain issue that might only be clarified on a case by case basis in the Courts.
The Government has announced that from 6 April 2011 it will start to remove the default retirement age of 65 previously allowed by the Employment Equality (Age) Regulations 2006. It is now consulting on the issue, but employers are likely to be left with little time to react and should start considering succession planning and whether they are going to take steps to reduce their exposure to claims from employees approaching or over the age of 65.
The proposals will also mean that employers will not be able to issue notices of intended retirement from 6 April 2011 onwards. However, a word of warning: If you intend to retire any employees who are 65 or over before 1 October 2011, do not rely on the cut off date of 6 April 2011 for issuing intended retirement notices, as this will be a week too late!
For employees reaching 65 from 1 October 2011 onwards, you will probably need to focus on performance management and possible eventual capability dismissal, at least until a justified contractual retirement age is reached. It seems likely that employers will face the difficulty of generating new, potentially justifiable higher retirement ages, depending on sector, organisation type and size and the specific requirements of each role.
Is ‘objective justification’ for retirement going to be so difficult?
A recent case in the Court of Appeal, Seldon v Clarkson Wright and Jakes, established – admittedly in a non-employment case - that a mandatory retirement age of 65 for law firm partners could be justified as “a proportionate means of achieving a legitimate aim”, where it was put in place to provide a balanced workforce and to encourage loyalty by creating opportunities for younger employees to become partners. On this evidence, it doesn’t seem too difficult to justify a retirement age of 65, but the new arrangements do nothing to provide certainty, as employers will still need to justify a particular retirement age in their own organisation and each determination is based on the specific role and the justification evidence available. A Government spokesman has said that examples where fixed retirement ages could be justified include air traffic controllers and police officers, but it is not clear on what principles these examples have been based. In any event, enforced retirement below the age of 65 will remain very difficult to justify and is probably only lawful where continuing work above a certain age can adversely affect health (such as onset of osteoporosis in deep sea divers).
Are you seriously suggesting that employers will have to make older employees suffer the indignity of ending their working lives by being told that they are no longer capable of working?
Possibly, yes, at least in the absence of a justified contractual retirement age. While the intention of the change in the law is in line with the increasing need for employees to be able to work longer for their pensions and it also complies with anti-discrimination principles, the spectre of employers having to lever out employees who might be hanging onto their employment for financial or social reasons, despite failing health and capability, is very real. The argument, of course, is that employers face capability and health issues at all ages and the principles should be applied universally. It remains to be seen whether the Government can come up with a formula that meets employers concerns, but it might be that only a specified mandatory statutory retirement age can address the key problem of uncertainty.
What do the proposals mean for you?
It depends on the culture of your organisation and the specific needs of your business whether you will scrap your mandatory retirement age and simply rely on resignation or eventual capability dismissal for older employees. If you significantly increase your contractual retirement age and seek to rely on the various justification arguments in reaching reasoned decisions on enforced retirement, this might provide a relatively safe and legal backstop to allow some form of succession planning and avoid the most testing capability issues. Only time and Court judgments will tell whether your justification argument is likely to prevail. Consulting with staff and agreeing a new, possibly higher retirement age with your existing employees is probably the best way to create evidence of justification, as employees themselves will be able to say whether they agree that a given fixed retirement age will encourage their loyalty.
In any event, you should now consider carefully whether you have any employees who are or will be 65 prior to 1 October 2011 who you know you want to or will want to retire before too long. Ironically it will be easier and less risky for you to terminate these employees by reason of retirement before 1 October 2011, provided that you give them notice before 31 March 2011.
Of course, all this assumes that the Government doesn’t U turn on the issue after the consultation has been carried out. The new uncertainty that this proposal ushers in for employers has not been received well by a large proportion of organisations and it seems likely that there will be a strong lobby for an alternative approach.
For further information on this or any other employment law issue, please contact Peter Jones by emailing Peter or by calling him on 08450 990045, or speak to your usual contact in the Employment Team.
This document is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from taking any action as a result of the contents of this document.