Following abolition of the national default retirement age of 65 last year, the Government left open the possibility for employers to introduce their own “employer justified retirement age” provided the age set was capable of being objectively justified in order to meet the employer’s legitimate aims for introducing this policy.   A recent decision of the Supreme Court in Seldon v Clarkson Wright and Jakes (A Partnership) indicates that although it may be technically possible to justify a retirement age, an employer will be taking a big risk in attempting to do so (the Seldon case concerned a partnership but the same principles will apply in an employment case). In another decision heard at the same time, Homer v Chief Constable of West Yorkshire Police, the Supreme Court considered whether an employer’s policy of restricting promotion to employees with a law degree was justified indirect age discrimination against an employee who didn’t have a law degree and didn’t have the time to obtain one before retirement.

Seldon and the difficulties faced by employers in justifying a mandatory retirement rules

Mr Seldon, a partner in the firm Clarkson, Wright and Jakes, brought a claim against the firm for age discrimination when he was forced to retire on reaching the compulsory retirement age of 65 under the partnership deed. The long running question in Seldon was whether this compulsory retirement age of 65 was justified as a proportionate means of achieving a legitimate aim. In light of the abolition of the default retirement age, the principles set down in this case now have a significantly wider application to the working population.

The Supreme Court found that the tests for justifying direct and indirect age discrimination are different. In order to justify direct age discrimination, the aims of the measure must have social policy objectives rather than purely individual reasons particular to the employer’s situation, such as cost reduction or improving competitiveness.

It will therefore be necessary for employers wishing to justify an act of age discrimination to consider whether the aim underlying that act is consistent with social policy aims. The Supreme Court held that the aims put forward by the partnership, namely ensuring staff retention by making partnership opportunities available to associates, facilitating workforce planning by having a realistic expectation of when vacancies will arise and limiting the need to expel partners by performance management were consistent with social policy aims and therefore justified. Each aim fell within categories of social policy objectives approved by the European Court; the first two in the category of inter-generational fairness and the third in the more controversial category of dignity. It did not matter that the aims were also in the firm’s best interests as they were, when viewed objectively, directly related to what is regarded as legitimate social policy.

Perhaps more importantly, the Supreme Court clarified that employers must prove any aim relied upon is legitimate in the particular circumstances of their business. For example, a business that has no problem recruiting young employees but finds it difficult to retain an older workforce will find it much more difficult to rely on a legitimate aim of maintaining a balanced workforce on the basis for compulsory retirement of the older workers. Similarly, where performance management is routinely carried out by a business against objective criteria (e.g. financial statistics) and employees are routinely performance managed out of the business on this basis, it will be difficult to rely on the aim of limiting the need to expel partners by way of performance management (the “dignity” aim).

On the upside for employers, the Supreme Court decided that it will normally be sufficient to justify a particular rule which applies to the whole workforce or a section of it, for example a mandatory retirement age, rather than having to justify the application of the rule to a particular person’s circumstances. The Supreme Court also said it doesn’t matter if the employer has not considered the rationale for a measure when it is first adopted. The Courts will consider justification at the time the difference in treatment is applied to the person who brings the complaint. This does not mean, of course, that if circumstances change over time, a rule which may have been justified once may, at a later date, fail to be valid at a later date. The Tribunal will need to enquire into the reason to maintain the particular measure in question.

The question of whether the mandatory retirement age of 65 in this case was a proportionate means of achieving the legitimate social policy objectives of the partnership will now be reconsidered by the Tribunal. The Tribunal will need to focus on the particular business concerned and whether any other, less discriminatory, measures would have met the same objectives. The Supreme Court felt that the fact that there had been a national default retirement age in place for employees at the time of this case, although not directly applicable to Mr Seldon, may impact on whether the measure was proportionate. Of course, this argument will no longer be available to employers since the abolition of the default retirement age.

Homer and the question of the requirement to obtain a law degree was indirectly age discriminatory

A second case considered by the Supreme Court involved issues of indirect age discrimination and justification. In this case, Mr Homer, a Detective Inspector with the West Yorkshire Police, brought a claim for indirect age discrimination against his employers because a new policy designed to encourage the recruitment and retention of top quality staff, required him to have a law degree in order to keep his top pay grade. He argued that this new requirement treated him less favourably than other younger employees because there was insufficient time for him to obtain that law degree before his normal retirement age of 65, and he would therefore never be able to reach the top of his grade.

Early in 2010, the Court of Appeal held that this was not age discrimination: what had put Mr Homer at a disadvantage was not his age but his impending retirement. The Supreme Court disagreed, holding that a requirement which worked to the comparative disadvantage of a person approaching compulsory retirement age is indirectly discriminatory on grounds of age. The reason for this disadvantage was that people in Mr Homer’s age group did not have time to acquire a law degree; and the reason why they did not have time was that they were soon to reach the age of retirement.

The Supreme Court said that the aims of facilitating the recruitment and retention of staff of appropriate calibre within the police were legitimate aims which might justify the age discriminatory impact of the new grading structure. However, it is necessary to distinguish the aim of recruitment from the aim of retention. It was clearly important to retain the skills and expertise of its existing highly valued staff, including Mr Homer, which meant that it was necessary to distinguish between the justification of the criteria for recruitment (where new recruits stand to benefit from the opportunity of career progression), and the justification of the criteria for promotion to the next threshold up for existing staff who were recruited under a different system, and who may or may not be motivated to stay by such an incentive.

Since the Tribunal had not considered the question of justification properly, the Supreme Court sent the case back to the Tribunal to decide this point.   In particular, the Court said that the Tribunal must approach the question of justification as follows:

  • For a measure to be justified, the measure must be a proportionate means of achieving a legitimate aim. To be proportionate, it has to be both an appropriate means of achieving a legitimate aim and (reasonably) necessary in order to do so. The terms appropriate and necessary are not synonymous and interchangeable.
  • Is a requirement for existing employees to have a law degree before they can achieve the top of their grade appropriate to the separate aims of recruiting and retaining new staff or retaining existing staff in the organisation?
  • Since the main impact of the new grading structure on Mr Homer (and others in his position) was to deny them the top salary (and therefore less final salary for pension purposes), was the requirement for a law degree reasonably necessary, in their particular case, in order to achieve the legitimate aim of the scheme? The answer to this may depend on what other less discriminatory measures are available. It is the requirement to have a law degree itself that must be justified, rather than its discriminatory effect? Part of the assessment of whether the criterion can be justified requires a comparison between the impact of that requirement upon the affected group, as against the importance of the aim to the employer.

What do these decisions mean for employers?

Direct age discrimination and employer justified retirement ages

Although Mr Seldon lost his appeal, this is by no means the end of the road for him. To the firm’s benefit, the Supreme Court confirmed that its aims in retiring Mr Seldon were legitimate. These were facilitating workforce planning, promoting intergenerational fairness and preserving dignity of older workers by limiting the need to expel them by way of performance management. However, the Employment Tribunal must now decide whether having a retirement age of 65 in Mr Seldon’s particular case was a proportionate means of achieving these aims.    Strong hints were given by the Supreme Court that the firm’s actions were proportionate because there was a national default retirement age of 65 at the time of his retirement.

The Court’s ruling therefore confirms that an employer may potentially be able to introduce its own default retirement age but the fact that there is now no national default retirement age means it will take a very brave employer to introduce such a default age. Those who do wish to take the plunge should note that whether having a set retirement age is justified will depend on the particular aims of the employer, whether a set retirement age is an appropriate and necessary way of achieving those aims and whether there is a less discriminatory method of achieving those aims. In the absence of a national default retirement age, it is difficult to see how an employer could ever argue that drawing the line at any particular age is appropriate or necessary, except possibly, in the case of some statutory requirements such as a health and safety requirement relating to the particular job.

Assessing whether a measure, criterion or practice is age discriminatory

Unlike Mr Seldon, Mr Homer won his appeal. Like Seldon, however, the case now has to be reconsidered by an Employment Tribunal on the question of justification. The Supreme Court decided in favour of Mr Homer, confirming that the requirement for him to obtain a degree was indeed related to age and not just his impending retirement. This seems a sensible conclusion as “retirement age” and “age” are clearly inextricably linked.

It is worth pointing that the application of this particular aspect of the decision is diminished by the fact that there is no longer a default retirement age. Therefore, an employee in Mr Homer’s position today would find difficulty arguing he has been put at a disadvantage compared to younger workers because he would, in theory, be able to complete a degree (there being no actual barriers in terms of the retirement age to prevent him from doing so in time to benefit from the degree). Today, Mr Homer would have to run a different argument, i.e. that someone of his age is less likely to hold a degree and so any rule which requires a degree for promotion to the next level is likely to put people in his age group at a disadvantage compared to younger workers.

The wider relevance of this decision to employers is to highlight the need to examine carefully any new rule or criterion, which although apparently age neutral, has, or arguably might have, an adverse impact upon people of a particular age.   Employers should be prepared to justify any such rule, both on its introduction and on an on-going basis. The impact of the rule should therefore be kept under review periodically. HR should ensure that a detailed business plan is drawn up to examine each individual’s aim (such as encouraging recruitment, recruitment of staff etc) in relation to its own business experiences. The plan might consider whether any group is disadvantaged and whether there are any less discriminatory ways of achieving those aims. This may involve considering “grandfather clauses” which preserve the existing status of seniority, with attendant benefits, of existing employees.