How to justify a compulsory retirement age
It is possible to justify a compulsory retirement age, according to the recent Tribunal decision in Seldon v Clarkson Wright and Jakes, but before enforcing one, employers are encouraged to consider their reasons for doing so carefully.
Retention of a fixed or compulsory retirement age nowadays constitutes age discrimination, which may be defensible in limited circumstances. Given our aging workforce, public policy is not generally in favour of compulsory retirement ages though.
Avoiding liability requires "objective justification". This means an employer needs to show that the compulsory retirement age is a proportionate means of achieving a legitimate aim.
Justifying age discrimination
So, what is an employer's "legitimate aim" and how is a compulsory retirement age an "appropriate and necessary" means of achieving that aim? Fortunately, there is case law to help us identify what these terms mean. Since the introduction of the Employment Equality Age Regulations 2006, there have been a series of cases where employees or partners have challenged enforced retirement on grounds of age discrimination. Clearly, if you force someone to leave their job because they have reached a particular age, it is on the face of it age discrimination.
Prior to April 2011, employers could rely on an exemption in the Age Regulations which allowed employers to retire its employees at age 65, the default retirement age. Due to our aging population, the low value of a state pension and low provision generally for retirement, in April 2011, this exemption was abolished. Employers could no longer rely on it if they wanted to keep a compulsory age, whether that age was 65 or any other age.
LLPs and partnerships never had the benefit of the default retirement age exemption, but routinely retained a fixed retirement age of 65. Since 2006 though, they have been subject to the Age Regulations and have had to justify fixed retirement ages since then. A number of partnership cases have set a benchmark for employers who retain fixed retirement ages post 2011.
One-fifth of employers are at risk of age discrimination claims by enforcing a compulsory retirement age following the latest 2013 "State of HR" report (conducted by Charles Russell Speechlys in association with Kings HR and Learning Board). One-fifth of employer respondents had retained a normal retirement age, but the majority do not provide objective justification for such retention.
Tried and tested legitimate aims
Compulsory retirement within the judiciary post 2006 was unjustifiable age discrimination (Hampton v Lord Chancellor and Ministry of Justice (2007)). In that case, the Ministry of Justice failed to convince the Employment Tribunal that compulsory retirement of Recorders was justified. The Tribunal agreed that a legitimate aim was to want to ensure a "reasonable focus" of new appointments into the judiciary. This is similar to the "retention aim" considered later in Seldon. However, the Ministry could not provide evidence to show that retirement at age 65 was a proportionate means of achieving that aim.
An Employment Tribunal also held that a retirement age of 48 for assistant football referees was found to be direct age discrimination (Martin and Others v Professional Game Match Officials (2009)). Again, the legitimate aim of "creating progression opportunities" was accepted, but the age of 48 was not considered reasonable or necessary. A strict proportionality test was applied and the Tribunal found that there were less discriminatory means of achieving that aim.
The now leading case on proportionality is Seldon, which went all the way to the Supreme Court and back to the Employment Tribunal following Mr Seldon's compulsory retirement as an equity partner in a law firm at age 65. The Supreme Court held that the law firm had correctly identified three legitimate aims referred to as the "retention aim", the "planning aim" and the "collegiality aim", but sent the case back to the Employment Tribunal to consider whether retirement at age 65 was proportionate to achieve these aims (or any of them).
When back at the Tribunal, the law firm decided not to rely on collegiality, just the "retention" and "planning" aims. The "collegiality" aim concerns the relationship between the partners; defining the nature of the partnership and how the partners relate to one another so that dignity is preserved.
But why age 65?
A great deal of guidance was provided by both the Supreme Court and the Tribunal in relation to these legitimate aims. The Tribunal was tasked with identifying "why age 65".
In relation to recruitment and retention of its employees, the Tribunal found that it was important for the law firm that its solicitors could see that when partners retired, succession opportunities to partnership were created for them: a career path. The firm provided evidence that solicitors would not have joined if there were partners in their 70s and 80s waiting to be paid off. Ambitious lawyers aspire to partnership and if partners were not required to retire, it would have been perceived as a limitation on the opportunity for advancement.
Also, in order to plan for the future of the firm, the Tribunal acknowledged that there was a need for a realistic long term expectation as to when and where vacancies in the partnership would arise. It was necessary for such a requirement to be written into a workplace plan (eg the partnership deed). Therefore, in addition to the retention aim, the "planning aim" was also considered a legitimate aim.
Interestingly, the Tribunal accepted that legitimate aims did not need to be in the minds of the partners at the time that the retirement age was agreed in the partnership deed, thereby allowing the law firm to consider what legitimate aims the retirement age was intended to achieve after the event.
In determining whether the two legitimate aims (retention and planning) were proportionate, the Tribunal balanced the interests of the law firm, the partners and their employees (solicitors who aspire to partnership), weighing up the needs of the partnership against the harm caused by the discriminatory treatment. In addition, the Tribunal took account of the fact that the lower the retirement age, the more harm to the partners who are required to retire and the higher the retirement age, the more harm to the associates solicitors who may leave.
It was not correct that "any retirement age" would achieve the two aims. A balance of competing needs is required. The retirement age could not be so high as to discourage solicitors who may otherwise leave and join a firm where the opportunities are more immediate, nor so low that the solicitors become concerned about partners being required to retire before the end of their career, or with the duration of partnership not meeting their expectations and the fact that there may be insufficient time for partners to make proper provision for their retirement.
The tribunal concluded however that a narrow range of ages would be acceptable. It found that the age of 65 in this case was within that band (which they decided was an age range of 64-66). However, the Tribunal was influenced by other factors as well; the fact that all the partners had signed up to the partnership deed in 2005, consenting to the fixed retirement age of 65, and the partners were considered to be in an equal bargaining position at the time. Further, the default retirement age (although applicable to employees and not partners) at that time was still in existence (age 65), thereby lending both fairness and proportionality to the selected cut off date. It was acknowledged that the position might be different if the relevant date had been after the abolition of the default retirement age and after the planned changes to the state pension age.
Justifying a fixed retirement age is influenced by what public policy says about a fair retirement age at the time it is fixed. As the age on which a state pension can be drawn rises, it is likely that the band of a reasonable retirement age for any particular position will rise too. Seldon was also influenced by an academic report on productivity and efficiency with age (the "Meadows report"), which concluded that work performance does not deteriorate with age at least to age 70 (although there was no evidence about work performance beyond age 70). The report found that the positive effects of experience, interpersonal skills and motivation, which come with age the report found offset loss of speed, strength and memory. Justifying a particular retirement age on health and safety reasons, and in my view collegiality, is likely to be difficult without clear supporting evidence.
This article was written by Emma Bartlett.
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The Autumn Statement 2016
Charles Russell Speechlys’ partners provided media commentary on today’s Autumn Statement and spending review.