EMPLOYMENT NEWS: End of the default retirement age?

On 1 October 2006 the Employment Equality (Age) Regulations 2006 (“Age Regulations”) introduced the right for employers to dismiss employees who reached the default retirement age of 65 (or younger if it could be justified) by following certain procedural steps. The law of unfair dismissal was amended so that retirement became a potentially fair reason to dismiss.

Less than 4 years later the Chancellor announced on 22 June 2010 in his emergency budget document “the Government will consult shortly on how it will quickly phase out the default retirement age from April 2011″.

Proposal

The announcement that the default retirement age will definitely disappear, will come as a surprise to many who thought that a review would simply lead to an increase in the default retirement age from 65 to say 70. However, the default retirement age has been unpopular with many from the outset, highlighted by the Heyday case which challenged the principle before the European Court of Justice. Many lobbying groups have also called for the end to an employer’s right to arbitrarily dismiss an older worker from employment on the grounds of retirement, at a time when the closure of defined benefit occupational pension schemes often mean that employees want to continue working.

Implications for Employers

The implication for employers is that in the future, retirement will no longer be a fair reason to terminate and the retirement process known as the “Duty to Consider” procedure will disappear. Older workers will have to be treated in the same way as any other worker, whose employment can only be terminated for one of the five other potentially fair reasons.

At the moment it is unclear whether the default retirement age will be phased out over time or suddenly end on a set date.

Employers are therefore encouraged to consider workforce planning now. This is particularly important bearing in mind the length of time the Duty to Consider procedure can take. Between 6 and 12 months before the intended date of retirement the employer must write to the employee informing them of their intention to retire the employee on their 65th birthday and informing them of their right to request to continue working. An employee can then request that their employment should continue indefinitely, for a stated period or for a fixed period. An employer must have a meeting with the employee to consider the request and if a request is refused, offer a right of appeal. This procedure can therefore take up to a year to complete.

The Chancellor’s Statement has the following implications for employers:-

• Those who have already commenced the Duty to Consider procedure to retire employees on or before April 2011 should continue to do so, since the intended retirement date should predate the change in the law.
• Some however may have commenced the Duty to Consider procedure, but the intended retirement date is after April 2011. Employers may want to continue and hope they can still retire individuals before any change in the law, although this carries some risk.
• Others may not have commenced the Duty to Consider procedure but want to, hoping the law will not change suddenly. This is a more risky approach since it is not certain when the law will actually be amended.

Employers may need to reconsider workforce planning if it has been based on an assumption that employees would be retired at the default retirement age.

Employers also need to tread with caution. The removal of the default retirement age will not necessarily mean a reduction in the number of age discrimination claims. The rest of the Age Regulations will remain in force and thus employees will be able to bring claims for direct and indirect age discrimination which can arise in a number of ways, for example the dismissal process, selection for redundancy, failure to promote, failure to recruit, etc.

The other key point to bear in mind is that when the default retirement age disappears, older workers may be keen to continue working but to work more flexibly. This therefore raises the issue of whether flexible working should be available to all in the workplace, an issue the government will consult on later this year.

If you have any specific queries relating to the content of this article or would like additional information on the issues covered please contact Ranjit Dhindsa.