Guide to managing without a default retirement age

Background

The Employment Equality (Repeal of Retirement Age) Regulations 2011 removed the default retirement age (DRA) of 65 years. Employers are no longer able to “retire” employees without justification and the dismissal of anyone aged 65 or over has to be for a fair reason, as listed in the Employment Rights Act 1996. Anyone dismissed over 65, if eligible, may bring a claim of unfair dismissal as well as a claim of age discrimination if they believe they have been dismissed wholly or mainly due to their age.

The absence of a default retirement age clearly has consequences for the way organisations manage their workforces and in particular how they handle the dismissal of older workers in a way that minimises the chances of them facing legal claims.

Can we enforce retirement at 65?

It will not be safe to enforce retirement at any age unless you have a solid objective justification argument to defend a claim of age discrimination (which of course you may not know for certain unless it is tested by a tribunal). In the past, some employers would decide each retirement on a case by case basis whilst others may have decided to retain a fixed retirement age, otherwise known as an employer-justified retirement age (EJRA). However, with the removal of the default retirement age, many employers have not felt able to justify keeping an EJRA and in most cases have been reasonably relaxed about accepting the fact that employees may continue working as long as they wish to.

Retirement is no longer listed as one of the fair reasons for dismissal. Any dismissal called retirement by the employer will be classed as “some other substantial reason” and the employer will be expected to follow a fair procedure. Such a procedure, according to ACAS, will involve giving reasonable notice to the employee and giving consideration to any request they may make to work beyond the retirement date. If the organisation has chosen to stick with a fixed retirement age which is objectively justifiable, then it must also ensure that employees are dealt with consistently and allowing some workers to stay on may undermine the rationale for having a fixed retirement age.

Other dismissals

Most likely an employee over 65 will be dismissed for other reasons, the most common one being their capability to carry out their work. ACAS suggests in its guidance that employers do not necessarily have to set identical objectives, targets or work expectations for all employees but clearly they must not be directly linked to a person’s age or any other protected characteristic. For example, objectives might be changed as a reasonable adjustment for disabled workers or lower targets may be set for employees who are less experienced or undergoing training.

Capability process

If an older worker is not performing, then there is no reason to avoid taking them through a performance management or capability process which might ultimately lead to their dismissal on the grounds of capability. Whilst many employers may feel that it is undignified to put an older worker through this type of procedure, artificially 'protecting' them might be considered equally problematic, and may result in other younger workers claiming discrimination, i.e., on the basis that the older worker is treated more favourably.

Reasonable adjustments at work

Older workers may well suffer various forms of ill-health and they may subsequently become disabled. If so, they are entitled to receive the same level of support and access to reasonable adjustments as for any other disabled employee. Similarly, if the adjustments required are impracticable the employer may still be able to say that they were justified in not making those adjustments as long as that justification is not linked to their age.

Voluntary retirement

Employees have the right to determine their own retirement age (where there is no fixed EJRA) and they should, as with any voluntary leaver, give the employer due notice (in accordance with their contract) of the date on which they wish to retire. Once they have served written notice there is no obligation on the employer to rescind the notice if the employee changes their mind. However, if the employee has only given a vague verbal intention to retire, say by the end of the year, but does not confirm this, the employer will not be able to rely on that indication.

Compulsory retirement

Objective justification

If an employer has an acceptable reason for doing so they may retain a fixed compulsory retirement age (but the reasons must be objectively justifiable). The employer must demonstrate two things:

• They have a legitimate aim for having an EJRA; and
• Retaining an EJRA is a proportionate means of achieving that aim.

What is a legitimate aim?

This is likely to be decided on a case by case basis by a tribunal but the types of aim that may be considered legitimate are as follows:

• Training requirements for the role;
• Health and safety risks in the job – for employees, their colleagues and members of the public; and
• Business needs or efficiency – such as the need to provide progression opportunities and have meaningful succession plans.

An employer needs to have more than just a general aim and must be able to demonstrate with evidence, such as using risk assessments or workforce statistics, that the aim is a valid one. For example a risk assessment and accident statistics which show that there is link between particular work, age and risk of injury; or workforce figures and exit interviews which show that a large number of key employees are leaving because there are no promotion prospects.

What is meant by a proportionate means?

The employer must show that having the EJRA does actually achieve the legitimate aim that they have identified and that there are no other viable routes to achieving the same aim. The aim must be of significance to the organisation and be capable of overcoming the fact that older employees will be discriminated against by its enforcement. It is not advisable to rely on arguments of cost alone.

The Supreme Court considered the justification test in the context of compulsory retirement in the case of Seldon v Clarkson Wright & Jakes and another [2010]. The Supreme Court upheld the decision that a retirement age in a firm of solicitors was justified on the basis in that it would help:

• Retain associates by being able to offer them the opportunity of partnership after a reasonable period;
• Facilitate partnership and workforce planning with realistic expectations as to when vacancies would arise; and
• Contribute to a congenial and supportive workplace culture by limiting expulsion of partners through performance management.

The Supreme Court held that an EJRA must be justified by reference to an aim of 'a public interest nature' and that the individual aims of an employer or firm were not, in themselves, sufficient. However, it held that the aims identified by the firm in this case were in fact social policy aims. The aims of staff retention and workforce planning related to 'inter-generational fairness', and the aim of limiting the need to expel Partners by way of performance management related to the social policy aim of 'dignity'. 

It would be wise to approach this judgment however with some caution as these aims could be less convincing in a different type of business.

The aims that employers might rely on to justify compulsory retirement are likely to fall within the 'inter-generational fairness' and/or 'dignity' categories highlighted in Seldon. However, these aims must actually be relevant to the employer's circumstances if they are to be legitimate for justification purposes. 

If you are considering enforcing a fixed retirement age seek assistance from your HR Rely advisor.

Recruitment of older workers

Under the old regulations it was permissible not to recruit someone who was within six months of reaching the DRA (or higher age if contractual). This has now been repealed and it is unlawful not to recruit based on age at any time.

However, if an organisation has continued to have a fixed retirement age which is objectively justifiable, they may be able to justify not recruiting someone close to that age if their recruitment would not be effective in the time the candidate would have left prior to retirement. For example, if lengthy training is involved which will not be completed prior to them being required to retire.

To avoid bias and remove the risk of discrimination, it is, therefore, important that a consistent recruitment process is applied by ensuring that short-listing and interviewing is carried out with close reference to the job description and person specification. Good recruitment practice is set out in our Guide to Recruitment.

Managing older workers

Employers should, if they have not already done so, review the way in which they manage older workers to ensure that they are not subject to others' stereotypical views of older workers, i.e., that they may be inflexible and less motivated. In line with good management practice generally the employer should ensure that line managers develop a knowledge and understanding of each individual’s skills and what motivates them. A good way of capturing this is via appraisal systems or what ACAS term “workplace discussions”. Having an opportunity with all employees to review their training needs, career aspirations and lifestyle plans will help organisations to get the best out of their employees. Consideration may need to be given to utilising older more experienced employees to mentor or train other employees and using the skills of older workers in more diverse areas of the work where they can be particularly valuable. 

Discussing retirement with employees

Many employers will now feel, and with good reason, that they cannot, at any stage, approach a worker to discuss their plans for the future with a view to ascertaining if and when they might retire. It has to be said that such discussions must be avoided where they are only targeted at particular age groups or particular individuals. However, ACAS suggest that more general career reviews which take place regularly for all employees will not necessarily be discriminatory if retirement becomes part of that discussion. Employers should of course beware of making any direct or indirect suggestion to the employee that they should or might think about retiring.

It may, in some circumstances, be appropriate to highlight the availability of Flexible Working as an alternative to retirement, but the employee should never be pressured or instructed to change or reduce their working hours, or be given the impression that this is expected. 

ACAS recommend the following areas for voluntary discussion on at least an annual basis:

• Performance to date against target, activities and outcomes;
• Developmental or training needs;
• Future plans (employer) – short, medium and long term;
• Aims and aspirations (employee) – short, medium and long term; and
• Future performance.

Retirement policies

It is recommended that employers have a retirement policy whether or not they have decided to retain a fixed retirement age. This is a good opportunity to set out how the organisation handles retirements and to let employees know about options open to them for support and alternative working arrangements. For example, the organisation may wish to remind employees considering retirement of the possibilities of flexible working, changing or altering their duties, working a “phase down” period prior to retirement and pre-retirement courses. The policy should also alert employees to the possibility that managers may hold voluntary workplace discussions from time to time with employees to explore their future plans and the plans of the organisation. Finally, the policy should outline the procedure to be applied by the employee when they decide to leave and/or the procedure to be followed by the organisation if they are enforcing an EJRA.

If the employer has chosen to keep a fixed retirement age, they should state this in the policy and set out their justification for doing so. The procedure must still allow employees to request to work on past the designated EJRA and detail how consideration will be given to that request.

Employers who have an EJRA must ensure that they have a contractual right to enforce retirement by inserting an appropriate clause into employment contracts if necessary. If there is no current contractual right, this may involve changing terms and conditions and you should seek specific guidance on this from your HR Rely advisor.

Benefits in employment

Some benefits provided to employees are linked to their age. The regulations permit some exemptions in relation to pensions. For more information on this, specific pension advice should be taken. Other benefits may also be exempt from the principle of equal treatment such as group insurance schemes (for example, for sickness, medical treatment, accidents, life assurance, etc.). For specific advice on this, contact your HR Rely advisor.

Employers should check the status of benefits which treat “good” leavers (i.e., those forced to retire) differently from “bad” leavers (i.e., voluntary resignations) in their provisions on leaving. Such schemes are typically bonus schemes or share options which may penalise bad leavers and/or give additional benefits to good leavers. As most employees will be resigning voluntarily when they wish to retire, employers may need to review these arrangements so that those who retire are not penalised for doing so. Care should be taken of course not to discriminate against younger voluntary leavers, e.g., those who are leaving to re-enter full-time education or to travel the world rather than to join a competitor.