Summary
The lawfulness of compulsory retirement is being argued over in the courts as a result of the Heyday challenge (see below for more details).
We believe that in assessing the lawfulness of the UK compulsory retirement provisions, the courts should not set the bar too high: compulsory retirement is ultimately a matter of employment policy which the government should have a broad discretion to decide without interference from the courts. But if the UK compulsory retirement provisions are found to be unlawful, compulsory retirement will become a thing of the past.
Perhaps more worrying for employers is the prospect of employees challenging past retirements. The courts have started accepting claims now before the outcome in Heyday is known. Our best prediction is that such claims, at least in the private sector, will ultimately fail – either because the Heyday challenge will not succeed or because any abolition of compulsory retirement would not have retro-active effect. However, there is clearly a risk.
Employers who are not prepared to run that risk can try to manage it by allowing employees to keep working until the law is clarified, trying to justify each compulsory retirement on its facts or negotiating compromise agreements. In view of the risks, member companies are encouraged to seek advice from their Associations before deciding on their approach.
A more detailed look at the issues and an explanation of our advice is set out below.
The Heyday challenge
When the UK government outlawed age discrimination in 2006, it introduced a specific exemption for compulsory retirement. According to this exemption, an employer can require an employee to retire at age 65 or above and be immune from an age discrimination or unfair dismissal claim as long as certain procedures are followed.
However, an organisation formed by Age Concern and operating under the name ‘Heyday’ is bringing a High Court challenge arguing that this exemption is out of line with EU Directive 2000/78 which requires member states to implement legislation prohibiting age discrimination.
We are unlikely to know the outcome of this case before 2009, since the High Court has referred questions to the European Court of Justice (ECJ) for a preliminary ruling.
What guidance will come from the ECJ is difficult to predict. The ECJ has recently declared a similar exemption in Spanish law to be justified and lawful (see ‘Case law update – ECJ rules that compulsory retirement is lawful’). However, this decision was based on an assessment of the specific aims of the Spanish government and whether or not exemption was a proportionate means of achieving them.
The UK government argues that its exemption was introduced with different aims from that of the Spanish exemption so the outcome may not be the same (and we have not seen the evidence supporting its case so it is hard to judge the cogency of it).
However, EEF believes that the courts should not set the bar too high in assessing the lawfulness of the UK exemption, since compulsory retirement is ultimately a matter of employment policy which member states should have a broad discretion to determine.
What are the implications for private sector employers if the Heyday challenge succeeds?
If the Heyday challenge succeeds, the UK compulsory retirement exemption will need to be removed and in future, compulsory retirement would be unlawful unless the employer could point to a specific justification for it. Relatively few retirements would meet the legal test of justification.
This in itself would be a worrying prospect for employers. However, even more worrying is the prospect that employees might be able to challenge compulsory retirement in the past as well as the future.
Can past retirements be challenged?
If the Heyday challenge succeeds, public sector employees could potentially challenge compulsory retirement dating back to 1 December 2006 by relying directly on the Directive and effectively sidestepping the exemption.
For private sector employees, the position would be different. They cannot rely directly on an EU directive. There are two main arguments they might run to challenge past retirements, although both are relatively speculative:
One of them involves persuading the High Court to declare the exemption to have been void from the start (although we think the High Court would be unlikely to do this in view of the serious consequences for private sector employees).
Another argument involves relying on a fundamental right of EU law not to be discriminated against which overrides any UK legislation. The ECJ has recently recognised the existence of a fundamental right but its scope is unclear and the decision has been widely criticised.
Our best prediction at this stage is private sector employees will ultimately not succeed in challenging past retirements, either because the Heyday challenge will fail or because these arguments for retro-active effect will prove unsuccessful. That said, there is clearly a risk.
Claims being accepted and put on hold
In December 2007, the EAT gave its written judgment in the case of Johns v Solent. This was a case of compulsory retirement at age 65 where the employer had followed the correct procedure and, on the face of the current UK legislation, should have been protected by the exemption.
However, the EAT declared that the tribunal should nonetheless have accepted the employee's claims of age discrimination and unfair dismissal and put them on hold pending the outcome of Heyday.
The judgment is unsatisfactory because, in our view, it is unclear why the judge concluded that a private sector employee would have a sufficient prospect of successfully challenging a past retirement even if the Heyday challenge ultimately succeeds. The case may be overturned by the Court of Appeal in due course.
However, in reaction to the EAT's judgment, the President of the Employment Tribunals issued a practice direction requiring all similar claims from private sector employees to also be stayed (put on hold) until the final outcome of Heyday .
This development does not, by itself, mean these claims will ultimately be successful. But it does increase the risks for employers because it builds a degree of momentum around the Heyday challenge and increases the chances of employees bringing claims.
Practical advice to employers
Our current advice to private sector employers is as follows:
You can still start the retirement process for employees approaching a normal retirement age of 65 or above. There will be no issue if the employee is happy to retire.
If the employee makes a request to continue working, you are faced with a commercial decision. If you require the employee to retire and he or she brings a claim, it will be accepted by the tribunal and then put on hold pending the outcome of the Heyday challenge.
Our best prediction at this stage is that the claim will ultimately fail for the reasons set out above. However, this is only a prediction and there is clearly a risk.
Many employers will simply choose to run the risk. Employers who are not prepared to do so can try to manage it in one of three ways:
- Allow the employee to continue working until the law is clarified (although this is unlikely to be before 2009).
- Only proceed with compulsory retirement where you believe that you could justify it on the facts. This would require you to have a legitimate aim (such as a high number of employees who are ‘stuck’ with no promotion opportunities) and to be in a position to demonstrate that compulsory retirement of this particular employee was a proportionate means of meeting that aim.
- Negotiate a compromise agreement if you are prepared to make a payment and a deal can be struck.
Whichever option you take, compulsory retirement is no longer straightforward. Member companies are therefore encouraged to take advice from their Associations before deciding on their approach.