Employment Law Watch : Employment & Labor Lawyer & Attorney : Reed Smith Law Firm

What happened in these cases?

In Wolf, Mr Wolf applied for a post in the Frankfurt Fire Service. However, he was told that his application would not be considered as the maximum recruitment age for such posts (which involved physically demanding tasks such as fighting fires and rescuing people) was 30. Mr Wolf brought proceedings in the German Courts on the basis that the maximum recruitment age was age discriminatory. The Court referred the case to the ECJ.

In Petersen, Ms Petersen, who practiced as a panel dentist for the German national health service, was informed that her authorisation to provide panel care would expire once she reached 68. German law provided that admission to practise as a panel dentist expires at the age of 68. However, outside this panel system, dentists can practice privately without any age restriction. Ms Petersen brought a claim in the German Courts for age discrimination. Consequently, the German Courts sought guidance from the ECJ on whether the Directive permitted a national law which sets a maximum age for practising as a panel dentist in order to protect patients health under a statutory health insurance scheme (on the assumption based on “general experience” that after this age there would be a decline in performance). 

The ECJ Decision

The ECJ in Wolf held that the maximum recruitment age for 30 was not contrary to the Directive as it was a genuine occupational requirement within Article 4(1) of the Directive. Article 4(1) of the Directive provides that no discrimination will occur where there is a difference of treatment based on a characteristic related to age and that characteristic constitutes a genuine occupational requirement, provided that the objective is legitimate and the requirement is proportionate.

The German Government said that the aim of the maximum recruitment age was to ensure “the operational capacity and proper functioning of the professional fire service”. The ECJ held that this constituted a legitimate objective within the meaning of Article 4(1). The ECJ’s reasoning was supported by Recital 18 of the preamble to the Directive which provides that the Directive does not require emergency services to recruit or retain persons who cannot carry out the range of functions that they may be called upon to perform in their job.

The German Government also provided evidence that only younger officials could cope with the exceptionally high physical demands of the fire service. Therefore the maximum recruitment age was needed to maximise the period in a career in which an official is able to perform those tasks. Having high physical capabilities was held to be a genuine and determining occupational requirement and this is related to age. The ECJ went on to hold that this was appropriate and proportionate to the objective, as recruitment at an older age would mean that the fire-service might be short of officials who could carry out the most physically demanding duties.

In Petersen, the German Government sought to rely on the exemption set out in Article 2(5) of the Directive which provides that the principle of equal treatment does not apply to national law that is necessary for the protection of health. It was argued that this maximum age was to protect the health of patients, because it was assumed from “general experience” that the performance of dentists would deteriorate from the age of 68 onwards. The ECJ held that the protection of patients from declining performance was a legitimate aim that might be considered necessary for the protection of health. However, the fact that panel dentists could practice privately outside the panel system after the age of 68, was inconsistent with that aim and undermined the prospect of it being consistently and systematically achieved. The ECJ then identified a further aim, that of ensuring the financial stability of the system, which could be considered necessary for the protection of heath. This aim could potentially be justified as it provided a means of limiting the pool of dentists employed within the national health system. The case will return to the national court in Germany to decide which of these aims might be achieved by the age limit.

The age limit could also be justified under the Directive, as an ‘appropriate and necessary’ means of giving younger people the opportunity of working as national health physicians. This would be a proportionate means of achieving a legitimate aim (as required by Article 6(1) of the Directive) if there were an excessive number of national health dentists, or a potential risk of such excess occurring. The national court in Germany will now have to decide whether any of these circumstances existed.

What these decisions mean for employers

In both cases the ECJ has accepted that age-related decline in performance is capable of justifying directly age discriminatory rules. Whilst in Wolf, (re the fire service) the German Government produced substantial evidence to prove this point, the same cannot be said in Petersen (re dentists) where the argument for age-related decline in performance was made on an assumption based on “general experience, Although the ECJ did not accept that the age limit could be justified (because it did not apply uniformly between the public and private sectors), it is significant that the ECJ considered age-related decline to be a valid assumption when considering whether a potentially discriminatory age cut off date is justified. This indicates that the ECJ is willing to accept a wide interpretation of the Directive in order to justify age-related discrimination. It would have been interesting, however, to see the ECJ’s conclusions should they have examined further the link between age and the decline in performance rather than just accepting this general assumption.  

This wide interpretation of the Directive was also illustrated in Wolf where the ECJ gave a very broad interpretation of the genuine occupational defence by finding that a maximum recruitment age, as well as physical fitness, was genuine occupational requirement related to age.

In UK law, except in relation to age, direct discrimination cannot be justified. Therefore, direct discrimination on other grounds (such as race, ethnic or national origins, religion or belief, sexual orientation) can only be defended by establishing a genuine occupational requirement. There is a possibility that employers who are seeking to defend claims under these strands might try to rely on the ECJ’s wide interpretation of the genuine occupational requirement to defend other strands of discrimination claims. However, in reality, it would be difficult for an employer to try and make this argument “through the back door”.

The case concerned a collective agreement which Rolls Royce had negotiated with the union Unite before the introduction of the Employment Equality (Age) Regulations 2006 (the “Age Regulations”). The collective agreement contained an agreed method of selection in any redundancy exercise, involving a point scoring system, where those employees awarded the least number of points were selected for redundancy. The selection matrix comprised a number of criteria including: Achievement of Objective; Self Motivation (drive); Expertise/Knowledge; Versatility/Application of Knowledge; Wider personal contributions to team. In addition, an employee would receive one point for each year of service, as part of the selection criteria. Rolls Royce was concerned that the use of length of service in this way could amount to unlawful age discrimination. In particular, Rolls Royce considered that the redundancy selection criteria agreed with Unite no longer fulfilled its business need, which was to retain those employees best able to adapt to the changed business environment. Rolls Royce applied to the High Court for a declaration as to the question of lawfulness. After hearing both sides’ arguments, the High Court declared the use of length of service as a criterion in this way to be lawful. Rolls Royce appealed to the Court of Appeal.

Whilst expressing some concerns about making a declaration on an issue which affected employees who had not been party to the proceedings, the Court of Appeal upheld the High Court’s decision finding that length of service criteria was lawful.

Indirect discrimination on the grounds of age may be justified if the employer can show that the application of the relevant “provision, criterion or practice” is “a proportionate means of achieving a legitimate aim” (Regulation 3(1) of the Age Regulations). The Court said that while length of service was indirectly discriminatory under Regulation 3, its use as a selection criterion could be justified because, viewed objectively, it pursued legitimate aims of rewarding loyalty and achieving a stable workforce in the context of a fair process of redundancy selection. The means of achieving these aims were proportionate because length of service was one of many criteria used and was by no means determinative; it was consistent with the overarching concept of fairness and also because the younger employees accepted it.

In addition, the Court considered the specific exception set out in Regulation 32 which provides that it is not unlawful for an employer to award a worker a “benefit” based on length of service where such service is 5 years or less, or, where it exceeds 5 years, it fulfils a business need. The Court said that length of service was clearly capable of constituting a “benefit” within the meaning of Regulation 32 and that viewed objectively, the length of service criterion reasonably fulfilled a business need (i.e. that of having a loyal and stable workforce). The fact that Rolls Royce doubted whether a business need was fulfilled in this way was, according to the Court, irrelevant.

What this decision means for employers

Although the Court of Appeal has confirmed that the use of length of service criteria in a redundancy selection matrix is not unlawful, it is important to note that the Court’s reasoning for this conclusion is particular to the circumstances of this case. The use of length of service as a criterion was not used as a “blunt tool” on its own to determine who was to be selected for redundancy. Instead, it was just one factor amongst many and, as the Court said, “was by no means determinative or definitive of selection”. It should also be noted that the use of length of service as a criterion for selection was negotiated in the context of a collective agreement with the union. Employers should still be very wary about using criteria such as “first-in, last-out”, or other criteria which make length of service determinative of the selection, as use of length of service in this way may not be a proportionate means of achieving a legitimate aim. The case is therefore not authority for a general proposition that length of service is invariably going to be a lawful criterion for redundancy selection, in the context of age discrimination.

What did the Advocate General say?

The aspect of the challenge which will be of most interest to employers concerns Regulation 30 of the Age Regulations. This Regulation permits employers to dismiss employees aged 65 and over by reason of retirement.    The AG said that Regulation 30 fell within the scope of Equal Treatment Directive 2000/78 (“the Directive”) and so was directly discriminatory on the grounds of age but might be capable of being objectively justifiable in accordance with the test laid down by the Directive; namely that it pursues a legitimate aim and the means of achieving that aim are appropriate and necessary.   The AG followed the reasoning adopted by the ECJ last year in Palacios v Cortefiel Servicios SA which concerned a similar challenge to Spanish mandatory retirement ages.

It is important to note that the High Court did not ask the ECJ to consider whether Regulation 30 was objectively justified as this is a matter for the High Court itself to decide. Nevertheless, the ECJ was asked to consider certain questions concerning the objective justification defence. 

First, as to whether the justification defence for direct age discrimination under UK law was less strict than that under the Directive, the AG said that it was sufficient for UK law to set out a general justification defence, and that a specific list illustrating the type of treatment which may be justified (as set out in the Directive) was not necessary. 

Second, as Regulation 30 is directly age discriminatory, the High Court had asked the ECJ to consider if the objective justification defence for direct age discrimination set out in the Directive should be stricter, in practice, than the objective justification defence for indirect discrimination. The AG said that possibilities under the Directive of justifying differences of treatment on age are more extensive that those based on other grounds. Age discrimination is unlike other forms of discrimination because it is not by its nature “a suspect ground”. Following the Spanish case of Palacios, the AG said that is appears that Member States are left with a relatively wide discretion in identifying the means to be used to achieve a legitimate aim relating to social and employment policies. 

The AG concluded that a rule providing for mandatory retirement ages (such as in Regulation 30) can, in principle, be lawful if that rule is objectively and reasonably justified in the context of national law by a legitimate aim relating to employment policy and the labour market, and it is not apparent that the means put in place to achieve that aim of public interest are inappropriate and unnecessary for the purpose.

What does this decision mean for employers?

Employers still need to wait for the final decision of the ECJ (expected in the next 6 months) and then the High Court before they can be sure that the UK’s mandatory retirement age of 65 is lawful. The prospects of success for Heyday have seriously diminished following Palacios and this opinion of the AG.

Assuming that the ECJ follows the AG’s opinion, it will be for the High Court to determine whether Regulation 30 does indeed pursue a legitimate aim which is proportionate. The UK Government has argued that Regulation 30 is justified on the basis that it helps work force planning as it provides a target age for retirement; it also reduces the risk of blocking promotion for younger workers and encourages workers to plan for their retirement. Assuming that this aim is indeed legitimate (because it was accepted in the Palacios case), the Court will have to decide whether the means to achieve such an aim i.e. a blanket mandatory retirement age of 65, is proportionate in achieving that aim.

In Palacios, the ECJ decided that Spanish law on mandatory retirement ages was proportionate. However, UK law is not quite as flexible as the Spanish law, in that under Spanish law, the default retirement age is set by collective agreement, thus giving some flexibility in opting out of the retirement age in respect of certain jobs. The state pension for a retired person in Spain is also different from that provided in the UK. Given these distinctions, there may be scope for Heyday to argue before the High Court that the way in which the UK law approaches the default retirement age is not appropriate, or goes further than is proportionate and necessary to meet the UK Government’s aims. 

If Heyday succeeds (which seems unlikely), the Government would have to remove the default retirement age under the Age Regulations. Employers would still be permitted to set their own retirement ages but they would have to be prepared to justify them objectively in the case of each age. Many employees have already challenged their compulsory retirement at 65 by bringing claims in the Employment Tribunal directly against their employers relying directly on the Directive. The claims that have already been made have been stayed pending the outcome of the Heyday decision. If Heyday succeeds, claims against public sector employers will also succeed because public sector employees are able to enforce EU law directly against their employers. The position as regard private sector employer is not so clear (see our Human Capital alert November 2007 regarding the EAT case of Johns v Solent). If Heyday does succeed, it is likely that there will be a flood of discrimination claims brought by employees who are forced to retire at 65. Whatever the outcome of the Heyday decision, the Government is set to review the default retirement age in any event in 2011. It is possible that at that point, the default retirement age could be abolished altogether, though given the arguments for retention which it has advanced in the Heyday case, this seems less likely.

Click to view the Advocate General’s opinion.