At the moment, employers can compulsorily retire employees who are 65 or older without being guilty of age discrimination or unfair dismissal, provided they follow the statutory retirement procedure. This threshold is known as the default retirement age (DRA).
However, the government has confirmed that the DRA will be abolished from 1 October 2011. From that date, employers will no longer be able to use the DRA to maintain a compulsory retirement policy for their workforce at age 65 or above, unless this can be objectively justified.
Although the change takes effect from 1 October, there are implications in the shorter term. From 6 April, transitional arrangements will be in place to ensure that retirements that are already pending can continue to completion, provided that:
- a notification of retirement is issued by the employer prior to 6 April;
- the date of retirement falls before 1 October 2011; and
- all requirements of the DRA procedure are met (such as considering a request to work beyond the DRA).
From 1 October 2011, employers will not be able to operate a compulsory retirement age (CRA) unless it is objectively justified; that is, the retirement age must be a proportionate means of achieving a legitimate aim. Legitimate aims include economic factors, such as the needs and efficiency of running a business; the health, welfare and safety of individuals; and the training requirements for particular jobs.
To demonstrate that a CRA is a proportionate means of achieving that aim, an employer must be able to show three things: that the CRA is actually achieving the aim; that the importance and benefits of the legitimate aim significantly outweigh the discriminatory effect; and there is no reasonable alternative means of achieving that aim.
Employers wishing to impose a CRA will need to ensure they have specific evidence of these justifications - they will not be able to rely on generalised assumptions.
It may be difficult for employers to justify a single retirement age for an entire workforce, as it is unlikely that the same justifications will apply to the whole workforce all of the time.
As an alternative, employers could consider setting retirement ages on a case-by-case or job-by-job basis. The difficulty with this approach is that gathering the evidence to justify different retirement ages in each case could be extremely time consuming.
When retiring employees on the basis of a CRA, employers must comply with the rules governing ordinary unfair dismissal. The reason for the dismissal is likely to fall under the 'some other substantial reason' category and, therefore, the dismissal will be fair provided the employer follows a fair procedure. To ensure this is the case, employers should establish a process for dealing with compulsory retirement that complies with the Acas Code of Practice as a minimum.
If an employer does not impose a CRA, employees will have the right to work until whatever age they decide, unless the employer intervenes. In most cases, employer intervention is likely to consist of 'managing out' the employee on capability grounds.
This means that where, for example, older employees struggle to cope with the changing demands of a role, or have high levels of absence as a result of mounting health issues, the employer will have to deal with this through a capability process that focuses on the employee's performance and not their age, as it would any other under-performing employee.
These are clearly delicate issues, so employers must ensure that all managers are properly trained so that they can show sensitivity and flexibility.
Employers will also need to consider whether there is any overlap with disability discrimination, including whether there is any duty to make reasonable adjustments to assist the employee - for example, allowing them to undertake less physically demanding duties.
To ensure that a dismissal on capability grounds is deemed to be fair, employers will need to ensure that a fair procedure is followed.
What should employers do now?
To ensure they are prepared for the abolition of the DRA, employers should:
- identify employees who fall within the transitional arrangements and, if appropriate, issue notices of retirement before 6 April
- consider whether to retain a compulsory retirement age and, if so, gather evidence to demonstrate that this can be objectively justified
- review employment contracts to check whether any variations are required - for example, removing references to retirement or altering the compulsory retirement age
- consider whether benefit schemes that are linked to retirement need to be changed and, if so, evaluate the cost - for example, permanent health insurance schemes that provide for payment of benefits until normal retirement age
- consider whether collective agreements need to be amended or renegotiated if they provide for benefits at retirement or are based on the period of employment up to retirement
- check whether there is any impact on the pension scheme.
Jennifer Makin is a solicitor at Pinsent Masons: www.pinsentmasons.com
