The last day employees can be compulsorily retired using the Default Retirement Age (DRA) is 30 September 2011, so the last day to provide 6 months’ notice required by the DRA provisions was therefore the 30 March 2011.

The question is: by what means will people be retired in the future? This article discusses to tools available to employers.

Employer Justified Retirement Age (EJRA)

From 1 October 2011, no employee can be compulsorily retired by an employer because they have reached the age of 65 unless that retirement can be objectively justified. Under UK legislation, direct age discrimination can be justified by showing a ‘proportionate means to a legitimate aim’ and this can be used to set a EJRA.

What factors can an employer rely on to justify a compulsory retirement age? Naturally, there is no exhaustive list to answer this question. However, the EU Directive underlying the UK’s Age Discrimination Regulations, guidance by the Equality and Human Rights Commission and existing case law suggest the following factors may be relevant:

• economic factors, e.g. the need to run your business efficiently;
• vocational integration of workers of a particular age group;
• the particular training requirements of the job;
• the health, welfare and safety of all employees, young and old;
• career progression opportunities; and
• high level of public health protection.

The Court of Appeal’s decision in Seldon v Clarkson, Wright & Jakes (published on the same day as the Government’s proposals on the DRA) is also relevant. In this case the Court confirmed that, at least in relation to retirement of partners, succession planning and the creation of congenial and supportive culture can be ‘legitimate aims’ which may support the use of a EJRA.

The Seldon case supports employers in two more ways. Firstly, the Court made it clear that employers have “some discretionary powers or a degree of flexibility”. Secondly, the Court held that simply because a later retirement age may be less discriminatory than the one adopted by the employer, this will not necessarily make the chosen retirement age inappropriate. However, at the time of writing the Seldon case is due to be heard at the Supreme Court, and the justification for a EJRA will no longer be benchmarked by a DRA, hence the appeal may well be allowed.

Making sure any dismissal is potentially fair

Even if the contractual retirement age is fair, an employer who seeks to rely on it (e.g. as ‘some other substantial reason’ for dismissal) will have to follow a fair dismissal procedure. What is a fair procedure depends on the reason for dismissal (e.g. capability) and will vary accordingly. At the very least, however, the employer will be expected to hold at least one meeting with the employee and allow the employee to bring an appeal. Fairness will be assessed in the usual way and consistency of treatment amongst employees is also likely to be relevant.

We expect employees to challenge compulsory retirements more readily once the DRA and the DRA procedures are abolished.

Alternatives to the a EJRA

This is an opportunity for you to review your practices and process for managing your employees and their performance. It is apparent that performance management, informal and confidential chats with employees of all ages are going to be a more integral part of succession planning and protecting businesses.

Good people management may be the best way to adapt to the removal of the DRA. Open discussion between employers and employees about future plans conducted in an atmosphere of trust will help facilitate the transition from work to retirement for both the individual and the business. This could be incorporated into your appraisal process where relevant.

For all employees workplace discussions should include:

• performance to date against targets, activities and outcomes;
• developmental or training needs;
• future plans that the employer has (how their skills can match future business plans);
• the aims and aspirations of the employee;
• setting out expectations for the foreseeable future;

Another useful exercise is to ask employees about their plans and aims for the short to long term. This will help employers to organise training, development and appropriate succession plans which should not be limited to older workers. This also gives employees a focus on their future goals. All discussions should be recorded and held as long as there is a business need, a copy of which can go to the employee.

What next? The AP Partnership suggests the following actions:

1. Decide whether the organisation requires and/or will benefit from having a EJRA. If the decision is to have an EJRA, the employer will have to collect and analyse hard, relevant evidence as to what this age should be. Ensure the introduction of an EJRA is done lawfully bearing in mind the law on contractual variations.
2. Have a clear appreciation of your benefits package and whether any benefits, especially insurance-based products, have a cut-off point of 65. It is not yet clear how the Equality Act will impact on insurance providers and to what extent premium costs will be allowed to increase with age. The difficulty is that if you offer employees a benefit, the cost of which rises significantly with age, you will have to be able to justify any decision to withdraw the benefit. UK law does not allow you to rely on costs alone as the basis of such justification. Talk to your insurance providers, assess the costs implications and then wait and see what the Equality Act says. We will detail developments in this critical area as they become available.