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UK Supreme Court clarifies law on default retirement age

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In a judgment published yesterday, the Supreme Court has left the door slightly ajar for allowing businesses to set their own retirement age for staff – but only if the reasons for doing so meet both their own and public policy objectives. It cautioned employers against adopting their own default retirement age (DRA) without careful scrutiny.

The case, viewed as one of the most significant for years on the issue of age discrimination, involved Leslie Seldon, a former senior civil litigation partner at law firm Clarkson Wright and Jakes (CWJ), who was required to retire at 65. Although the default retirement age (DRA) was abolished in October 2011, its exemption provisions had not been legally tested till now.

CWJ argued its retirement policy satisfied the exemption requirements of the DRA legislation, because: it allowed effective succession planning of partners and the workforce; provided associates with a clear opportunity of partnership, so aiding retention; and avoided the need to expel partners through performance management, (the ‘dignity’ point).

The Supreme Court accepted the principle that a private employer could have its own DRA, but it thought that there had not been sufficient scrutiny of whether the chosen retirement age of 65 was a proportionate means of achieving those aims at CWJ.

It sent the case back to the employment tribunal to carry out that closer examination. Only then will there be a final conclusion on the overall issue of whether this employer is entitled to have its retirement age of 65 for partners.

There was mixed reaction to the decision.

Neil Carberry, CBI director for employment and skills policy, said: “This ruling confirms that, at least in principle, companies are able to set their own retirement age. However, this does nothing to fill the vacuum left by the Government’s scrapping of the default retirement age.

“If employers want to set a retirement age that is suitable for their workforce, and know for sure whether it is legitimate, they will still have to go through a costly and lengthy legal process.

“The Government cannot continue to pass the buck. Employers need to know how to handle the sensitive issue of retirement, with adequate protection to discuss plans with their staff, and better guidance on when a retirement age is justifiable.”

Irwin Mitchell partner and national head of employment, Tom Flanagan, commented: “This is an eagerly awaited judgment, as the outcome provides businesses with clearer guidance in relation to their own retirement policies after the DRA was abolished in October 2011.

“The Supreme Court has required what looks like a more restrictive interpretation of those issues, which means that an employer can have its own DRA, but only if its legitimate aim satisfies public policy objectives, as well as its own internal ones, and it is prepared to gather sufficient evidence to justify the means of achieving it.

“The ‘inference of discrimination’ would be even stronger if the performance management applied to older employees is different to what was applied to them previously, and is in any way different to what is applied to the rest of the workforce.”

Caroline Carter, head of employment, incentives and pensions at law firm Ashurst, added: "Unfortunately, the ruling does not give employers the much-needed clarity they have been seeking as to when they can justify having a compulsory retirement age. Consistent with European case law, the Supreme Court has agreed that succession planning (‘intergenerational sharing’), and avoiding performance management of older workers (‘dignity’) are legitimate aims. However it has left the Employment Tribunal to decide on the particular facts whether 65 was a proportionate retirement age to pick, and has explicitly left it to employers to grapple with whether they consider a particular retirement age is justified in their business.

“For many employers who have now abolished their retirement ages following the change in law in April, the ruling does not alter their position: the safest course is to remain without a compulsory retirement age and therefore avoid the inevitable legal argument which would follow if they tried to introduce one," Carter added.

Anthony Fincham, head of employment law at CMS Cameron McKenna , said: “This litigation is not a great advertisement for our system, but I do not think this judgment will allow mandatory retirement ages to return by the back door. We have had four hearings to date and the Supreme Court has now sent this back to the Employment Tribunal for further consideration. Six years on from his compelled retirement, Mr Seldon still does not know whether that was lawful. Mind you, it would have been worse if there had been a reference to the European Court somewhere along the way.”

Richard Fox, partner and head of employment at law firm Kingsley Napley, added: “This is a significant decision not just for partnerships but all companies craving certainty and guidance about how to handle issues of retirement and succession. The abolition of the default retirement age and increasing numbers of people wanting to work longer to make up for inadequate pension provision, combined with economic pressure on jobs, is a real conundrum for employers. In that sense, the guidance offered by the Supreme Court today that it is possible to justify compulsory retirement on specific grounds, is very much to be welcomed.”