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How scrapping the default retirement age could affect tribunal compensation awards

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The days of employers being able to retire employees at age 65 are numbered. Yet in claims brought by older workers employment tribunals often base lost earnings compensation on a retirement age of 65. So how will compensation awards be affected if the Government decides to scrap the default retirement age?

On 25 September the High Court gave its long-awaited ruling in the Heyday case. The case was brought by the charity Age UK (formerly Age Concern) in an attempt to quash the exemption in UK age discrimination law that permits employers to retire employees against their wishes, often known as the ‘default retirement age' (DRA).

The judge dismissed Age UK's challenge, but his ruling had a sting in its tail. Although the judge allowed the DRA to stand for now, he clearly felt the time has come for the Government to reconsider it. In fact, the Department for Work and Pensions has said it will do exactly that next year, with a view to changing the law in 2011 if necessary.

It is unlikely the review will result in the DRA remaining at 65. But we do not know whether the DRA will be abolished completely or simply raised to 70, for example. Whatever happens, employers need to be aware it could lead to an increase in compensation levels for some employees bringing tribunal claims.

Compensation for unfair or discriminatory dismissals takes account of the claimant's resulting losses.  Calculations cover not just lost earnings to the date of the hearing but also future loss. As such the process usually involves speculation: for how long would the claimant have been employed if they hadn't been dismissed; how soon might they find a new job? In this sea of uncertainty one factor can serve as an anchor: retirement. If the employer can show the claimant would have left at a particular age through retirement, losses can be pinned down to a fixed period.

In Killa v Electronic Motions Systems Ltd (2008), a 59 year-old employee who won an age discrimination claim after being made redundant was awarded over £78,000 to cover his future lost earnings and benefits up to his retirement age of 65. Had the tribunal not found that he would have retired at 65 the award could have been considerably higher.

If the DRA is scrapped, very few employers will be able to show that they would have retired someone and any compensation for lost earnings should be limited accordingly. Even if the DRA is raised, rather than abandoned, some awards will inevitably go up.

Compensation for ‘whole career loss' will usually only arise in claims from older workers, although the case of Rudd v Eagle Place Services Ltd (2009) demonstrates that the concept of ‘older worker' can have a broad span: Rudd, aged 42, was awarded compensation representing lost earnings up to a retirement age of 65 following a discriminatory dismissal. 

So, if the DRA is abolished and employers can no longer show they would have retired someone at a particular age, how will compensation be assessed? Ultimately it will be for tribunals to use their ‘common sense, experience and sense of justice' to assess for how long the employee would have been employed but for the dismissal (Software 2000 Ltd v Andrews (2007)).  The focus will shift to the employee's own plans and any evidence that they would have retired voluntarily at a particular age. That evidence could identify a backstop date beyond which the employee was unlikely to work, and a tribunal might well discount compensation by a percentage to reflect the chances of earlier retirement.

Even if an older worker has no imminent retirement plans, like all other claimants they are expected to mitigate their loss by looking for another job. Tribunals, as in the Killa case, often take account of the possibility that discriminatory attitudes among potential employers might limit an older worker's job opportunities. But a change in the DRA could open up the job market for older workers, making it easier to find other work. So, employers might ultimately find that in some cases compensation goes down rather than up.

Audrey Williams, partner and head of discrimination law at international law firm Eversheds