Out with the old ... Top tips on handling retirement

Since October 2006 when the Employment Equality (Age) Regulations 2006 (the “Regulations”) came into force, it has been unlawful to discriminate against workers, employees, trainees and job applicants on the grounds of age.

The Regulations also introduced a default compulsory retirement age of 65 and made “retirement” a sixth potentially fair reason for dismissal (along with, for example, conduct, capability and redundancy).  The statutory dismissal procedures do not apply to retirement dismissals.  Instead, employers are required to follow a different procedure, commonly referred to as the “duty to consider” procedure.  This means that, if an employer can show that the reason for the dismissal of an employee was retirement and that it followed the relevant procedure in dismissing the individual in question, that dismissal will not be unfair.  It is therefore important that the correct procedure is followed in retiring employees.  

Tip 1: Consider offering a compromise agreement

The default retirement age of 65 introduced by the Regulations (which is due to be reviewed in 2011 and may be abolished), means that, although discriminatory on the face of it, employers may compulsorily retire their employees when they reach age 65 (or later). 

It is possible for employers to have a contractual or normal retirement age below 65, but this would have to be objectively justified, which is difficult to do.  Employers should, therefore, avoid having a normal retirement age below 65, if at all possible.

The default retirement age is currently subject to challenge on the ground it is incompatible with the EC Framework Directive the Regulations were intended to implement.  That challenge has been referred to the ECJ and a decision is currently pending.  The President of the Employment Tribunals has recently given a Direction that any employment tribunal claims which depend on the validity of the retirement defence should be stayed pending the ECJ’s decision in that case.  Where employers are concerned that an employee is likely to be unhappy with his/her proposed retirement, pending a decision on the legality of the default retirement age, they may wish to either avoid such dismissals (unless they are confident that they can justify the dismissal on an objective basis if required to do so), or enter into a compromise agreement with the relevant employees at the point of retirement.

Tip 2: Ensure compliance with the “duty to consider” procedure

This procedure only applies to employees (i.e. not to workers) and there is no qualifying period of service in order to be covered by it.  However, if the dismissal is to be challenged as being unfair, the employee will need to have the requisite one year’s service to bring an unfair dismissal claim.

Step 1: The employer should notify the employee of the date that it intends to retire the employee.  This notification must be in writing and made to the employee at least six months but not more than 12 months before the intended date of retirement.  If an employee wishes to work beyond the intended retirement date (whether for a fixed period or indefinitely), he/she must notify the employer (in writing) of that wish and should do so more than three months before the intended date of retirement stated on the employer’s notification.  Such a request must comply with the statutory requirements by, for example, stating the proposed period for which he/she is requesting that the employment continue.

Step 2: If the employee requests not to be retired on the date of the proposed retirement, that request must be considered before the employee is retired.  Failure to do so will render the dismissal automatically unfair.  The employer must hold a meeting with the employee to discuss their request (unless it is not practicable to do so).  This meeting must be held within a reasonable period of the employer receiving the employee’s request not to be retired.  The employee has a right to be accompanied at the meeting by a fellow colleague.  The employer must give the employee written and dated notice of its decision as soon as practicable after the meeting.  Note that there is no requirement on the employer to give reasons for refusing the employee’s request (although it would be good practice to do so).  If the employer does decide to give reasons, it should be careful not to give the impression that it is discriminating against the employee on any of the forbidden grounds (i.e. race, sex, disability, sexual orientation, religion or belief).

Step 3: The employee has a right to appeal against the employer’s decision to refuse his/her request to work beyond the intended retirement date.  If the employee appeals, an appeal hearing should be held within a reasonable period of time.  The employee has a right to be accompanied at the appeal meeting and the employer should give the employee written notice of its decision as soon as reasonably practicable after that meeting and, if dismissing the appeal, should confirm the date on which the retirement will take effect.   

If, at any point during the process, the parties agree a specific period of further employment and the period of the extension from the original proposed date of retirement is six months or less, there will be no need for the employer to continue the process, or to restart the procedure in respect of that amended date.  The amended date effectively supersedes the original date as the intended date of resignation.

However, if the agreed extension in the above scenario is for a period greater than six months from the original date of intended retirement, the employer will need to restart the above procedure in respect of that new date.  Similarly, if the parties agree to an indefinite extension of employment, the employer will need to restart the procedure if it later decides to retire the employee.

Tip 3: Objective justification requires serious consideration for non-employees

The default retirement age and the ability to compulsorily retire employees once they reach that age only applies to employees and not to, for example, agency workers, office-holders or partners.  This means that, if a non-employee has their contract terminated once they reach a certain age, that person will have a claim for direct age discrimination.  It will then be for the employer to show that that discrimination is justified.  In this respect, non-employees are in a stronger position than employees (since employees can be compulsorily retired on reaching the age of 65 – provided the relevant procedures have been followed). 

There has been a recent case in which the compulsory retirement of a Recorder by the Lord Chancellor and Ministry of Justice was held to be unlawful discrimination.  The employment tribunal did not accept the Ministry of Justice’s argument that a compulsory retirement age of 65 was a proportionate means of achieving the legitimate aim of (among other things) ensuring a reasonable flow of new appointments in the judiciary.  The Ministry of Justice has, however, appealed to the Employment Appeals Tribunal. 

Another recent case has held that the compulsory retirement of a partner in a law firm was not unlawful discrimination on grounds of age.  The compulsory retirement of partners was held to be a proportionate means of achieving a legitimate aim, that aim being to ensure that associates stay with the firm and are given the opportunity of partnership after a reasonable period (an argument similar to that made in the above case). 

Whilst neither of the above cases are binding authority, they do offer some guidance to organisations retiring non-employees and highlight how important it is that the organisation can objectively justify any mandatory retirement age.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.