Supreme Court Gives Guidance on Retirement

The Supreme Court has this week handed down its judgment in respect of an important case dealing with compulsory retirement.

As Jenny Gibson explained in her blog of 22 February 2011, the law relating to compulsory retirement changed from 1 October 2011. Employers can still retire employees at a default retirement age (“DRA”), but that will constitute unlawful age discrimination unless it can be justified as a proportionate means of achieving a legitimate aim. There has been little guidance on what will constitute such a justification and so the general advice for employers to date has been to avoid having a DRA or otherwise seeking to compulsorily retire an employee, but instead try and rely on some other reason for dismissal in appropriate cases, for example capability.

The case handed down by the Supreme Court this week provides valuable guidance on what kind of legitimate aims will justify compulsory retirement. The case involved the retirement, not of an employee, but a senior partner in a law firm. Mr S turned 65 on 15 January 2006. The partnership deed provided for the mandatory retirement of partners at the end of the year in which they reached the age of 65. Mr S requested to work beyond the end of the year, but his proposals were rejected and he was retired as of 31 December 2006. Mr S brought various claims, including that his automatic retirement constituted age discrimination. As Mr S was not an employee, he did not fall within statutory provisions, which were in force at the time, which would have automatically allowed compulsory retirement. The firm therefore had to justify its actions, and so the Supreme Court’s decision as to whether the retirement was justified is particularly relevant now that the law has changed and all employers will be required to justify such actions.

The Supreme Court held that the following, which were relied upon by the law firm, were legitimate aims: (i) ensuring associates were given the opportunity of partnership after a reasonable period, thereby ensuring they did not leave the firm; (ii) facilitating the planning of the partnership and workforce by having a realistic long term expectation as to when vacancies would arise; and (iii) limiting the need to expel partners by way of performance management.

In doing so, it explained that legitimate aims must be “social policy objectives”, such as those related to employment policy, the labour market or vocational training. They would not include purely individual reasons particular to the employer’s situation, such as cost reduction or improving competitiveness. The Supreme Court held that there were two kinds of legitimate objectives: inter-generational fairness (for example facilitating access to employment by young people, enabling older people to remain in the workforce, sharing limited opportunities to work in a particular profession fairly between the generations) and dignity (for example avoiding the need to dismiss older workers on the grounds of incapacity or performance). The Supreme Court held that, in this case, aims (i) and (ii) were directly related to inter-generational fairness, and aim (iii) was directly related to dignity.

However, the Supreme Court was unable to give its view on whether the imposition of a DRA of 65 was a proportionate means of achieving those legitimate aims, i.e. why 65 as opposed to, say, 70? The question was not asked of the Employment Tribunal at the original hearing and so the Supreme Court has remitted the case back for an answer in that regard.

This case is of some comfort to employers but legal advice should always be taken before attempting to impose a DRA or otherwise compulsorily retire an employee in order to minimise the risk of exposure to liability for age discrimination.