Phasing out the Default Retirement Age

As of 22 March 2011: The draft Regulations laid before Parliament now provide for a 12 month transitional period i.e. so that retirements can take effect for up to 12 months from 5 April. An updated article will follow shortly.

Current law:

Businesses should now be used to operating the current retirement provisions. These are an exception to age discrimination. Dismissal of an employee at or over the age of 65 is not unlawful age discrimination if the reason for the dismissal is retirement and the correct procedures are followed. Currently this now dealt with in paragraph 8, Schedule 9 to the Equality Act 2010. This continues the procedure whereby an employer notifies an employee of their intended retirement date and considers any request by the employee not to be retired. The appropriate written notice of the intended retirement date has to be given. If notice is not given the dismissal is deemed not to be by reason of retirement and the Equality Act 2010 defence to discrimination will fail. There are certain excluded categories of workers for example, partners are not included in the extension for retirement dismissals and requiring a partner to retire at a certain age would be unlawful direct age discrimination unless it can be objectively justified.

The current procedures relate to retirement at the employer's normal retirement age, whatever that might be, or 65 if there is no normal retirement age. The normal retirement age if under 65 has to be objectively justified. The trigger notice has to be given between 6 and 12 month of the intended retirement date and the employee has to be given written notice of the right to request to continue working. The statutory regime provides for the conduct of the meeting and appeal procedure.

The coalition government announced its intention to consult on phasing out the default retirement age from April 2011 and a consultation paper has been published which proposes transitional arrangements to come into effect from 6 April 2012 leading to the abolition of the default retirement age and statutory retirement procedures by 1 October 2011.

Employers giving notice of retirement after 6 April 2011 will no longer be able to rely on the default retirement age.

Key proposals

6 April 2011 - There will be a transitional regime to phase out the DRA and all current statutory retirement procedures. No new notifications of retirement under the DRA can be issued by employers

1 October 2011 - The DRA and the statutory retirement procedures will abolished.

Where an employer has given notice of retirement under the DRA using the statutory retirement procedures before 6 April 2011 and the intended date of retirement is before 1 October 2011 (note this does not mean on or before it means before i.e. on or before 30 September) the DRA will continue to apply so long as the employer continues to follow the current statutory retirement procedures. However, there is a potential trap for any employer who incorrectly gives notice prior to the 6 April 2011 but with an intended date of retirement after 1 October 2011 as the DRA will no longer apply. The employer will need to objectively justify any retirement taking effect after 1 October 2011.

The Employment Lawyers Association (ELA) have pointed out that it is not clear from the statutory consultation what happens on the 1 October 2011 itself as the regime refers to either before or after.

After the 6 April 2011 employers can still compulsorily retire an individual, providing that they can objectively justify retirement as a proportionate means of achieving a legitimate aim.

HR Managers and Employment Lawyers are watching closely for the final legislation likely to be published within the next few months.

The new retirement procedures

The government's proposals call these "employer justified retirement ages" (EJRA's). Employers can also stop using a compulsory retirement age with individual retirements decided on a case by case basis. A fair procedure will have to be followed.

The key issue for HR Managers is that for compulsory retirement the employer must be able to show that it is a proportionate means of achieving a legitimate aim.

What employers will need to consider

"Legitimate Aim"

This could be economic factors i.e. running a business efficiently. It could be health, welfare and safety of individuals or a particular requirement of the job.

It is clear from case law that saving money by getting rid of older workers who might have built up a higher salary (for example than a younger worker doing the same or similar job) is not by itself legitimate aim.

"Proportionate"  means that the means of achieving the legitimate aim must actually achieve it or significantly achieve it; the employer should have considered thoroughly reasonable alternatives and should have no reasonable alternative to the action it takes and the discriminatory effect should be significantly outweighed by the importance and benefits of the legitimate aim.

Fundamentally, employers absolutely cannot rely on any preconceived or general assumption about older workers and retirement ages. Specific and valid evidence has to be obtained.

A case involving a dispute between partners in a law firm - Seldon v. Clarkson Wright & Jakes and Secretary of State for Business, Innovation and Skills (2010) has given employers some guidance as to the sort of issues to be considered. For example it could be a legitimate aim to avoid forcing an assessment of a persons deteriorating performance, saving an older worker with long service, embarrassment particularly, for example in a partnership. In the same case when it was heard by the Employment Appeal Tribunal it was also recognised that in terms of business planning more junior members of staff might wish for a succession and career strategy enabling them to become, in that case, a partner, after a reasonable period. Facilitating the planning of partnerships and work forces across individual departments could also be legitimate aims. This is going to cause a headache for employers who are more likely to face age discrimination and unfair dismissal claims from compulsorily retired employees. The issues will surround not only the procedure but also demonstrating a proportionate means of achieving a legitimate aim which itself will depend upon proper and thorough evidence based policies.

Employment Lawyers Association - Response

The Employment Lawyers Association, (ELA) which is a group of specialist employment lawyers. Mark, Glenn and I are all members and ELA have formulated after consultation with its members its own formal response to the government on the changes.

A number of concerns have been specifically raised:-

1. It will take time to develop the law relating to a formal and fair procedure and in the short term it is going to be very difficult for employers to know whether the procedure they are adopting is fair. For example the current system provides for a 6 month notice. Will it be safe for employers to assume that something less than 6 months is fair or should they continue with a 6 month notice provision? The current system provides for a formal process for an employee requesting to work beyond retirement - certainly in the short term employers are probably going to follow a similar system rather than risk anything less formal being considered unfair. The current economic climate and changes to pensions are likely to lead to increasing numbers of employees challenging decisions requiring them to retire. The ELA suggest that guidance which is not overly rigorous is required.

2. There are a number of different ways in which the government could amend existing legislation. For example retirement could continue to be listed as a fair reason for dismissal under section 98 of the Employment Rights Act 1986 (ERA). It could be removed from the ERA or remain as a category under "some other substantial reason".

On balance the ERA has recommended to the government that retirement be deleted from the list of fair reasons in section 98 providing that justified retirement amounts to some other substantial reason within the list under section 98. That might make it easier for employers and lawyers to follow decided cases on what constitutes a fair procedure.

3. Currently it is lawful to discriminate against a person older than or close to the employers normal retirement age or the age of 65 in relation to recruitment. References to the age of 65 would have to be removed to make this consistent with other changes in the law.

4. The ELA has made strong representations to the government that there should be formal guidance for both employers and employees to simplify, so far as is possible, the new regime and to avoid the suggestion that merely raising the issue of compulsory retirement demonstrates age discrimination. The ERA's response to the consultation paper proposes a statutory code of practice similar to the ACAS Disciplinary and Grievance Code which sets out principles of best practice, whilst avoiding being overly formal and prescriptive with mandatory steps which might cause undue difficulties if they are not precisely followed. The ERA has submitted that employers will be left in an unprecedented situation. Without a mechanism for discussing compulsory retirement it will be difficult for employers to avoid the allegation of age discrimination. In particular small employers without a dedicated HR function will risk spending excessive management time to avoid disputes. The proposal is that conversations about career planning/continuing to work or retirement should form part of discussions with employees from an agreed stage in their careers, particularly for medium and large size organisations who have standardised appraisal systems in any event. Such an approach should avoid an artificial "tick box" exercise with employees in their 20's and 30's.

Australia, for example, has adopted a new frame work which involves an obligation to speak to every employee after the age of 50 about career planning called "staying on discussions". In France where organisations have more than 50 employees employers have obligations to produce a "senior plan" providing a provisions and objectives in order to retain people at 50+ or to recruit at 50+.

5. Changes to the legislation will need to consider carefully the position of a worker who requires a particular physical ability to carry out a job where age is impacting upon that ability. It is generally agreed that those issues can be very narrowly defined.

6. The issue of compulsory retirement will need to be carefully thought out where there is a final salary pension and where a transitional period such as flexible or shorter working hours may impact. This may impact particularly on the public sector.

7. There are some difficult areas for the government to consider regarding insured benefits and employee share schemes upon removal of the DRA. Many employers provide benefits such as life assurance, medical cover, critical illness schemes and income protection schemes. Premiums charged by insurers increase for older workers particularly beyond the age of 65 or 70. Current case law suggests that costs alone cannot justify discrimination and the Equality Act provision will, in due course, impact on insurers with regard to discrimination on the grounds of age and the provision of insurance benefits unless the insurer can objectively justify such treatment. Those provisions will not come into force for some time but social trend suggests that employers will be employing more and more employees over 65 and it may be simpler for employers simply to remove insured benefits from all staff rather than deal with some of the difficulties of different costs of benefit based on age profile. This may also impact upon refusal of requests to work beyond normal retirement age which can be objectively justified.

Employee Shares Schemes - because these schemes permit various retirement ages to be incorporated into them it is believed that they will not fall foul of age discrimination. However there is scope for disputes particularly from younger employees who may feel disadvantaged. Again these are issues for the government to consider in terms of legislation. One of the features of the formal ELA submission to the government is that it draws attention to the way in which UK laws on retirement may well be incompatible with EU laws and clearly need a wholesale review.

What can Wake Smith & Tofields help with?

• We will be monitoring and reviewing changes in the law and guidance and can keep you updated on the latest developments.

• We can give you practical and up to date support on compliance with the current regime and with adopting a fair process to take effect from the 6 April. Because the changes in the law place employers in a particularly difficult situation guidance will need to be updated to reflect new information and we can continue to prompt you to review such processes.

• In particular we can work with you, based upon your particular business and using our knowledge of guidance and case law on the issues of legitimate aim and proportionate means to help you arrive at a compulsory retirement age which is evidenced by the particular requirements of your business.

• Subject to demand we can put together a tool kit for you based on your particular business and sector with prompts as to the specific information that you will need to collate to prepare an evidence based compulsory retirement policy.

• For existing clients who use our HR services such a tool kit would be relatively inexpensive and would include a free initial visit to the work place to ensure a thorough understanding of your particular business model. Additional support and aftercare could then be offered as required. We will be happy to discuss your individual requirements and agree any support package that suits your business.

If you require any further information or advice, please call Holly Dobson on 0114 266 6660 or email [email protected].