Age discrimination and retirement of the older employee

Before the Age Discrimination Regulations came into force, an employer could include a retirement clause in the contract of employment stating that employment will terminate upon the employee reaching their 65th birthday. An employee aged 65 or over did not have the right to make a claim for unfair dismissal.  

Before the Age Discrimination Regulations came into force, an employer could include a retirement clause in the contract of employment stating that employment will terminate upon the employee reaching their 65th birthday. An employee aged 65 or over did not have the right to make a claim for unfair dismissal.  Age Discrimination Regulations came into force on 1 October 2006 prohibiting age discrimination in employment. These regulations contained an exception which allowed employers to dismiss an employee 65 years of age or older if it followed a statutory procedure. If this procedure was followed correctly, the employee could not make a claim for unfair dismissal either. In April 2011 the Default Retirement Age (DRA) was abolished. So, where an employer requires an employee to retire at a fixed age, that will amount to direct age discrimination unless that action can be justified. Employees 65 and over are no longer barred from making a claim for unfair dismissal. A Confederation of British Industry’s survey, published in 2014, found that 24% of employers were unsure about how to manage retirement of older workers following the abolition of the DRA.  Employers must decide whether or not to have a fixed retirement age, or they could decide to have a fixed retirement age for some jobs/roles. Alternatively some employers may take the view that employees will want to retire at some point in time and are more likely to do so before their capability has declined to the point where the employer needs to take action on performance grounds. Compulsory retirement on grounds of age is direct discriminationCompulsory retirement is direct age discrimination, but unlike other forms of discrimination, direct age discrimination can be justified if it is “a proportionate means of achieving a legitimate aim”. Compulsory retirement can also be defended if it is an “occupational requirement” but this is not often used. The justification defence can be used in any type of indirect discrimination and direct age discrimination, but employers should note that the test of justification is narrower in direct age discrimination than the test for justifying indirect discrimination cases.  In indirect discrimination cases, the employer does not have to show that the legitimate aim has any wider public interest or social policy aims. However, justifying direct age discrimination, the employer it seems must show that its legitimate aim has some social policy or public interest benefit. The Equality and Human Rights Commission (EHRC) Employment Statutory Code of Practice says: "The range of aims that can justify less favourable treatment because of age is narrower than the range of aims that can justify other forms of discrimination...For an aim to be regarded as legitimate for the purpose of justifying less favourable treatment because of age, it must pursue social policy objectives, such as those related to employment policy, the labour market or vocational training. It must be of a public interest nature, distinguishable from purely individual reasons particular to an employer’s situation, such as cost reduction or improving competitiveness."  The Supreme Court considered the justification test for direct age discrimination in the context of compulsory retirement in the case of Seldon v Clarkson Wright. The court reviewed European Court of Justice case law and said that direct age discrimination must be justified by reference to an aim of a public interest nature that is consistent with the social policy aims of the state, and that the individual aims of an employer are not in themselves sufficient.  However, in that case, where a partner of a law firm was retired, the court held that the aims identified by the employer were social policy aims. The aims of staff retention and workforce planning related directly to the social policy aim of "inter-generational fairness", and the aim of limiting the need to expel partners by way of performance management related directly to the social policy aim of "dignity".  To successfully defend a claim of direct discrimination for retirement the employer must therefore show it had a legitimate aim and it was proportionate The EHRC Code states that legitimate aims should "promote inter-generational fairness and dignity" and gives the following examples: 

•  Promoting access to employment for younger people.
•  The efficient planning of the departure and recruitment of staff.
•  Sharing out employment opportunities fairly between the generations.
•  Ensuring a mix of generations of staff so as to promote the exchange of experience and new ideas.
•  Rewarding experience.
•  Cushioning the blow for long-serving employees who may find it hard to find new employment if dismissed.
•  Facilitating the participation of older workers in the workforce. 

The aims that employers might rely on to justify compulsory retirement are likely to fall within the inter-generational fairness and/or dignity categories highlighted in Seldon. Nevertheless, these aims must actually be relevant to the employer's circumstances if they are to be legitimate for justification purposes.  For example, an employer may argue the aim was to increase the recruitment of young people so as to achieve a balanced and diverse workforce, however, if in fact that employer has no difficulties in recruiting the young person it might not be able to rely on that aim.  Employers relying on "dignity" may claim the aim was to avoid the need for performance management. That may be a legitimate aim, but if in fact the employer already has sophisticated performance management measures in place, it may not be legitimate to avoid them for only one section of the workforce.  Assuming a legitimate aim can be established, an age-discriminatory measure will only be justified "if the means of achieving that legitimate aim are appropriate and necessary". The term appropriate and necessary is translated into the Equality Act 2010 as "proportionate".  So, the action must be proportionate and go no further than necessary in achieving it. When deciding whether a compulsory retirement age is proportionate, a tribunal will consider: 

• Whether a compulsory retirement age actually achieves the legitimate aim identified.
• Whether there is an alternative to a compulsory retirement age such as using fitness/competence tests rather than age as retirement criteria.
• Why the particular retirement age chosen by the employer is appropriate and necessary.
• Whether the employer applies a retirement age consistently. Deviations could undermine the assertion that the particular cut-off point chosen is necessary, although there is a counter-argument that blanket rules which take no account of individual circumstances are harder to justify.

 If an employer does not have a compulsory retirement age, then it may have to consider performance management as a means of dismissing the employee. Poor performance can be a fair reason for dismissal on grounds of “capability” or “Some Other Substantial Reason (SOSR)”. To succeed, an employer must show that it honestly believed, on reasonable grounds, that the employee was incapable of performing their job.  If a claim is made, the Tribunal will consider whether management discharged its responsibilities towards the employee, such as clearly communicating the requirements of the role to the employee and, where applicable, it has provided the necessary support and training. Case law has established that a dismissal for poor performance will not be fair unless the following key elements are present: 

•  A proper investigation into the problem has taken place.
•  The employee has been made aware of the problem and been given an opportunity to improve within a realistic timescale.
•  The employee has been provided with appropriate support and possibly training.
•  The employee's progress is reviewed during the review period.
•  The employee is offered a right of appeal against the decision to dismiss.

 Before dismissing for poor performance, employers should investigate to ensure there are no other underlying issues that need to be addressed such as ill-health or disability; problems with child care or caring responsibilities; poor management within the team; harassment or bullying by a manager; excessive workload leading to inability to deliver and causing stress for the employee. The ACAS Code recommends that at least two warnings are given before an individual is dismissed for poor performance, unless there is gross negligence. The period of time given to improve will depend on the circumstances and the role in question. If a capability procedure provides for a certain timescale for improvement, this should be followed. Employers may be able to set the timescale to correspond with its business cycle, for example quarterly sales targets. Sometimes employees will improve during the timescale but will lapse soon afterwards, so employers may consider a longer warning period than usual (say 12 months) making it clear that there needs to be a sustained improvement.  The dividing line between inherent incapacity and idleness can be a thin one. Capability issues will be down to inherent incapacity to function whereas a failure to exercise to the full such talent as is possessed will be misconduct. Employers must be clear as to which “fair” reason they are relying on to dismiss. So employers may wish to consider whether they should impose (justifiable) compulsory retirement rather than hoping the employee will resign or that they will have to utilise its poor performance procedures.