Government Announces Fixed Retirement Age to be Abolished
Employees have a right not to be treated less favourably because of their age
and also have a right not to have a provision, criterion or practice applied to them which puts them at a disadvantage compared to people who are not the same age. Using the law, which is now found in the Equality Act
, an employee who is retired because they have reached a certain age may make a claim for age discrimination against their employer
. However, at the time of writing, the law states that 65 years old is the national Default Retirement Age ('DRA'). This means that if an employee is retired by an employer when they are 65 years or older, provided the correct statutory procedure is followed by the employer, the employer does not have to justify choosing to retire the employee and the employee is unlikely to succeed in a claim for age discrimination or unfair dismissal.
An employee can choose to retire before they reach 65
, but if an employer tries to set a retirement age at below 65 years and an employee disputes this, that employer will have to justify their actions in retiring the employee. The test for justification is whether an employer can objectively justify retiring the employee at the chosen retirement age as a proportionate means of achieving a legitimate aim.
Default retirement age to be abolished on 6 April 2011:
In July 2010 the Government made proposals for the Default Retirement Age (DRA)
to be abolished. A consultation was launched by Edward Davey, Minister for Employment Relations, Consumer and Postal Affairs, who said at the time "[older workers] have a wealth of talent and experience" and that "if someone wants to stay in work they should have that choice".
On 13 January 2011 the Government announced that the DRA of 65 will be phased out from 6 April 2011
and will be removed completely after 30 September 2011. Regulations will be published that will bring this into effect and ACAS has also published formal guidance for employers on the transitional arrangements and the procedure that should be followed when retiring employees after the abolition of the DRA.
From 6 April 2011 transitional arrangements will apply
so that the DRA and the associated statutory retirement procedures will start to be phased out. After the transitional period, on 1 October 2011, the DRA and the statutory retirement procedures will be finally abolished
and employers will have to justify the retirement of any employee and follow a fair procedure. Because the old statutory procedures for retirement will be abolished, employers should look to the new ACAS guidance to see what fair retirement procedures should be followed.
From 6 April 2011 to 30 September 2011 the transitional arrangements will be as follows:
- If an employer has given notice of retirement under the DRA using the statutory retirement procedures before 6 April 2011 and the intended date of retirement is on or before 30 September 2011, an employer will be able to rely on the DRA, provided they follow the old statutory retirement procedures.
- Under the old procedures at least six months notice of retirement has to be provided to an employee and if an employer gives short notice of retirement an employee can claim compensation of up to eight weeks’ wages. Therefore, if an employer gives a notice of retirement between 30 March 2011 and 5 April 2011 they can still use the DRA provided the retirement is to take place on or before 30 September 2011. However, the employer will have to give less than six months’ notice of retirement and therefore the employee may be able to claim compensation under the old short notice of retirement provisions.
- If an employer has given notice of retirement under the DRA using the statutory retirement procedures before 6 April 2011 but the intended date of retirement occurs on or after 1 October 2011, the DRA will no longer apply. Therefore the employer will need to be able to objectively justify retiring the employee at the chosen age as a proportionate means of achieving a legitimate aim and follow a fair retirement procedure.
- If an employer gives any notice of retirement on or after 6 April 2011, that employer cannot rely on the old rules under the DRA. Instead the new rules will apply; meaning that the employer will have to prove that they had a legitimate aim for their actions and that the retirement of the employee is a proportionate way of achieving that legitimate aim. The employer will also have to follow a fair procedure when retiring the employee, guidance for which has been written by ACAS.
During the consultation several employers raised concerns with the Government that after the DRA was removed there would be no cut-off date after which an employer could legitimately say that they would not pay for benefits such as, for example, private medical insurance, for their employees. Therefore employers would have to pay for increasingly expensive benefits for their employees indefinitely. The Government has therefore said that a specific exception will be inserted into the new regulations so that employers may be able to stop paying for group risk insured benefits like medical insurance once an employee reaches the state pension age without exposing themselves to the risk of claims for age discrimination.
Removal of the DRA will also mean that the maximum recruitment age is abolished, so that employers will no longer be able to refuse to employ applicants to new jobs who are aged 64 years and 6 months or more simply because of their age. Therefore any employer who wants to limit the ages of new applicants to a job after the abolition of the DRA must objectively justify any maximum recruitment ages.
Retirement after the DRA is abolished:
Once the DRA is abolished, employers will no longer be able to compel employees to retire once they reach 65. Instead, employers must objectively justify retiring employees at any age as a proportionate means of achieving a legitimate aim. And even if employers are able to justify retiring employees at a particular age, they must also prove that they followed a fair procedure as detailed in the guidance written by ACAS.
What happens next?
The abolition of the DRA will have a significant impact on the law regarding age discrimination and unfair dismissal. In relation to age discrimination, the abolition of the DRA will mean that employers who wish to retire employees against the employees’ wishes on grounds of age alone will need to objectively justify the retirement as a proportionate means of achieving a legitimate aim. However, recent case law has given guidance on how employers may, in certain circumstances, be able to justify their actions and meet this requirement.
In relation to unfair dismissal claims, once the DRA is abolished, retirement will no longer be an automatically ‘fair’ reason for dismissal. Therefore, even if an employer successfully defends an age discrimination claim on the grounds that the retirement was justified, if the same employee also makes an unfair dismissal claim, after the DRA is abolished the employer will have the additional burdens of proving that there was a potentially fair reason for retiring the individual employee, that the retirement was fair in all the circumstances and that the employer followed a fair procedure. This may make it more difficult for employers to defend claims for unfair dismissal in the future but each case will have to be considered in its own individual circumstances.
It is worth noting that the legislation applies equally to all employers and there are no exceptions or limitations to be applied for small businesses. Because of the far reaching implications of the legislation, some employers may have to change their general employment policies in addition to their retirement procedures, such as policies on career advancement and performance reviews in order to ensure they comply with the requirements of the legislation. For example, one of the recommendations in the new ACAS guidance is for regular workplace discussions should take place with all employees regardless of age to review performance and long term goals.
Following the recent economic difficulties and the public sector cuts that are being anticipated and experienced, it is likely that after the DRA is abolished public and private sector employers will review their workforce and seek to dismiss employees who are more expensive. Older employees are often more experienced and therefore are often more senior and more expensive for employers to employ. Employers who previously have relied on compulsory retirement at age 65 as a useful means of managing their workforce using ‘natural wastage’ will no doubt be considering how to adapt this regime and other employers may seek the early retirement of employees in an effort to reduce costs.
Because the proposed legislation and case law in this area remains undeveloped, the near future will be an uncertain time for both employers and employees. It is therefore more important than ever for employees, trade unions and employers to negotiate agreements on retirement policy and to ensure any agreed retirement age is based on clear, sound and justifiable reasons.
More information can be found on the websites for the Department for Business, Innovation and Skills (BIS) at www.bis.gov.uk
and the Advisory, Conciliation and Arbitration Service (ACAS) at www.acas.org.uk
This article was written by Emma Dickinson in our Employment Team.Useful links