‘De-risking’ and financial exclusion
The default retirement age of 65 was effectively abolished on 6 April 2011. Employers, and many employment law practitioners, appear to be resigned to a future without compulsory retirement for older employees.
The basis for this pessimism is that since 6 April, retirement has no longer been one of the potentially fair reasons for dismissal under the Employment Rights Act 1996 (ERA). Furthermore, the old statutory “notification” procedure under the old Employment Equality (Age) Regulations 2006 (the Age Regulations) was also abolished. This has meant that many have seen the era of being able to require an employee to retire as having passed.
It is, however, theoretically possible to fairly dismiss someone on the basis of age under the potentially fair “Some Other Substantial Reason” (“SOSR”) set out in the ERA. There will of course be the risk of an age discrimination claim if the dismissal is not properly justified, and the procedure involved will be completely different from the old retirement procedure under old Age Regulations, but nonetheless such a dismissal could, if handled properly, be safely effected.
Many employers will have a fixed retirement age specified in their employment contracts; this will usually provide for notice to be given, or older contracts may even state that the contract will automatically come to an end when the employer reaches a certain age, often 65. ACAS guidance and the Government have suggested that, where a fixed retirement age is not specified in the contract, then a “one-off” dismissal, on the basis of age would not be possible. However, under the legislation there is (theoretically) not much difference between such a circumstance and an employer dismissing once an employee has reached a fixed retirement age. In both cases the employer will have to justify the compulsory retirement in exactly the same way.
Age related dismissals will now have to come under the SOSR head, so a dismissal will be judged fair or unfair under the usual tests procedural fairness that have been established under the ERA. The ACAS Guidance “Working without the default retirement age” that may be taken into account by Employment Tribunals in judging the fairness of such a dismissal (although it does not have the same force as codes of practice such as the ACAS Code of Practice on Discipline and Grievance) suggest that a retirement will be fair where:
i. The retirement age has been justified objectively by the employer and
ii. A fair procedure has been followed
Furthermore, under the Equality Act 2010, the employer will also have to justify, objectively, its decision to retire someone at a specific age. The Tribunals will decide this case by case basis based on the facts presented to them. It is not, at the moment, easy to predict what the Courts and Tribunals will consider to be objectively justified as many of the old reported decisions on retirement were influenced by the existence of the DRA procedures. For example, the leading age discrimination case of Seldon v Clarkson Wright and Jakes & Another was decided on the basis that the DRA “supported the choice of 65 as a fair and proportionate cut off point” for retirement. Obviously this case (which is on appeal to the Supreme Court at the moment) would have been decided differently by the Court of Appeal now the DRA has gone.
It is possible, though, to predict that Employment Tribunals will look at the demographic makeup of an employer’s workforce that makes planning for succession as being of heightened importance in justifying a compulsory retirement. Other potentially legitimate aims may include having an age balanced workforce and intergenerational fairness, thus facilitating the recruitment of younger employees, and also making sure that there is no adverse impact on pensions and benefits. It must be emphasised, though, that the law is in a state of some flux following the abolition of the DRA and it remains to be seen what objectively justified reasons the Employment Tribunals will accept.
In terms of a fair procedure, the ACAS Guidance suggests that employees should be given “adequate notice” of the dismissal and employers should also consider whether the employee could work beyond the relevant age. By drawing an analogy with the old DRA procedure a formal meeting with employees at least 6 to 12 months prior to the proposed retirement may also be appropriate.
Employers also need to be aware of the dangers in relying on capability issues in age-related dismissals. In some cases there may be genuine performance problems with older workers and employers may keep them on but avoid invoking capability procedures so as not to hurt their feelings. This might lead to discrimination claims if not raising performance issues leads to the employer overlooking a disability and therefore any reasonable adjustments that could be made. In Newey v Sainsbury's Supermarkets Ltd it was held that suggesting retirement to an under-performing employee constituted age discrimination. In redundancies, too, care should be taken. Adjusting redundancy scores for an older employee on the grounds that they “will probably retire soon anyway” will constitute age discrimination.
The law on retirement has changed radically and there will be some uncertainty for some time to come. Nonetheless, employers should not think that retirement as a concept is gone for good. Properly managed, with a fair procedure and a properly, objectively, justified reason, employers may well be able to rely on age as a reason for dismissal going forward.
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