The Supreme Court has recently issued its long-awaited decision in the Seldon and Homer cases on compulsory retirement age and indirect age discrimination. However, the court has not really given employers guidance as to how to proceed on a practical level.
In the case, Mr Seldon, a partner in a law firm, objected to having to leave the partnership on his 65th birthday as stipulated in the partnership agreement. Mr Seldon’s forced departure took place in 2006, in a period when legislation still permitted retiring employees at 65. However, Mr Seldon was not an employee and consequently his departure on the grounds of his age needed to be justified in order for it not to fall foul of discrimination legislation. Following the introduction of the Equality Act and the repeal of legislation permitting a compulsory retirement age of 65, employers are now in a very similar position to the law firm in this case.
Forcing an employee to retire at a specified age is directly discriminatory. However, direct age discrimination is the only type of direct discrimination that can be justified. This case sets out that the justification required in a direct age discrimination case is narrower to the justification permitted in an indirect discrimination case. In a direct discrimination case, the justification must have a wider social benefit and cannot just relate to benefits to the business. The Supreme Court recognised that there have been a number of legitimate aims that have been accepted in the context of direct age discrimination claims. These are reasons connected to:
For example, facilitating access to employment for young people; enabling older people to remain in the workforce; sharing limited opportunities to work in a particular profession fairly between the generations; promoting diversity and the interchange of ideas between younger and older workers.
For example, avoiding the need to dismiss older workers on the grounds of incapacity or underperformance, thus preserving their dignity and avoiding humiliation, and avoiding the need for costly and divisive disputes about capacity or underperformance.
The dignity argument is controversial because, as Age UK argued in the case, the philosophy underlying all of the anti-discrimination laws is the dignity of the individual, the right to be treated equally irrespective of either irrational prejudice or stereotypical assumptions which may be true of some but not of others. Nevertheless, the argument has been successfully run and is open for employers to use.
From the employer’s perspective, any decision to have a compulsory retirement age should be made with a view to what the social policy reasons are for the compulsory retirement. However, this does not mean that the business cannot use a social justification to its benefit. In this case, the court accepted that the firm’s aims - the retention of associates, facilitating the planning of the partnership and workforce and limiting the need to expel partners by way of performance management - were legitimate even though these were aims that were in the firm’s best interests.
Difficulties may arise for employers as to the justification of having a particular retirement age, for example age 65 instead of age 70. The Supreme Court, which itself provided no guidance on selecting an appropriate retirement age, has sent this case back to the Employment Tribunal to decide whether age 65 was an appropriate age in the circumstances. However, it is unlikely that the Tribunal will provide useful guidance in this area as the Supreme Court has already noted that it would be appropriate for the Tribunal to take into account the fact that at the time both when the clause was agreed to and when it was applied to Mr Seldon, it was possible for employers to set a compulsory retirement age of 65 for their employees.
Even if the decision to maintain or adopt a compulsory retirement age was not originally made with social policy objectives in mind, this will not prevent the employer from claiming the compulsory retirement age is justified on social policy grounds. As long as the business aims can be made to fit in with the social policy justifications, it does not matter whether these are considered at the time the decision is made or even at the Tribunal as the Tribunal’s role is to seek out the reason for maintaining the compulsory retirement age. Nevertheless, it will help the employer to prove that this was the genuine reason for the retirement age if it has evidence that it considered these issues at the outset.
Once an employer identifies a social aim behind the compulsory retirement age, it still has to be considered whether the aim is legitimate in the particular circumstances. For example, improving the recruitment of young people, in order to achieve a balanced and diverse workforce, is in principle a legitimate aim. However, if in the particular circumstances there is no problem in recruiting the young and the problem is in retaining the older and more experienced workers then it may not be a legitimate aim for the business concerned. Similarly, whilst avoiding the need for performance management may be a legitimate aim, if in fact the business already has sophisticated performance management measures in place, it may not be legitimate to avoid them for only one section of the workforce.
If a social policy objective is accepted as a legitimate reason for the compulsory retirement of employees for a particular business, an employer will still have to show that compulsory retirement of employees and, in particular, a specific compulsory retirement age retirement age is the least discriminatory way of achieving that aim. It is likely that this will be a difficult task for employers.
To justify any compulsory retirement age, employers will need to produce evidence to back up their case and it is worth thinking about this evidence when setting a retirement age. For example, if an organisation is struggling to recruit and retain younger staff because there are no promotion opportunities due to older members of staff remaining in employment, it may be that this would justify a compulsory retirement age (assuming there are no less discriminatory measures that could be implemented) and evidence should be gathered to show this. Such evidence may include details of exit interviews or annual reviews. It may also include diversity statistics.
Although this case has provided a thorough review of direct age discrimination and the problems in this area, it does not really answer the question as to whether an employer can have a retirement age and if so, what this should be.
The Supreme Court has set out a possible framework for a bold employer to justify a compulsory retirement age, but it is not yet clear what line the Employment Tribunal will take when faced with these cases and therefore how employers should best act. However, it is likely that a tough stance will be taken given that the wider context is a society where individuals are living longer yet are failing to contribute sufficiently to their pensions. Furthermore, there is always going to be scope for claimants to point to other jurisdictions, for example Australia, where employers have not been significantly troubled by not having a permitted compulsory retirement age. Given this context, our advice is that the most sensible position would be not to adopt or maintain a compulsory retirement age.
Where an employer does wish to introduce or maintain a compulsory retirement age it will need to give careful thought as to what retirement age is appropriate - an automatic retirement age of 65 is unlikely to wash - and to what social policy objective the compulsory retirement age will fit into. However, it is likely that having a compulsory retirement age will be seen as an invitation for claims and therefore even for the boldest employers may be more trouble than its worth.