The Government has announced it will begin phasing out the default retirement age of 65 from April 2011. Under the proposals, retirements under the statutory procedure will cease completely on 1 October 2011 and no new notices of intended retirement can be issued after 6 April 2011. Retirements that have been notified before 6 April to take effect before 1 October 2011 will be valid, but not those due to take effect after that date.
Whilst phasing out the default retirement age has been anticipated for some time, abolishing it altogether so quickly, goes further than many businesses expected. Employers will have to decide how to manage those members of their workforce who want to work for as long as possible, for example, to supplement an inadequate pension.
Employers will still be able to retire employees, but will not be able to rely on the cast iron defence to an age discrimination claim afforded to them by following the statutory procedures to the letter. Instead they will have to look at justifying each retirement or only exiting employees when their performance falls below a satisfactory standard. Both of these options are tricky and employers will need to take great care to avoid the traps that this change will entail.
Justifying a set retirement age
Employers who wish to continue to set a retirement age will have to justify their decision to do so – whatever age is selected. This is not a straightforward process. Generally an employer will have to avoid stero-typical or ageist assumptions and provide real evidence to support the fact that performance declines after the age set. This point was illustrated in a recent case involving a professional football referee who was forcibly retired at 48. The tribunal found that the compulsory retirement age was discriminatory. The tribunal recognised that the physical demands of the job might justify a retirement age of around 48, but that in itself was not enough. The employer had not justified the selection of 48 as opposed to any other age.
Even if an employer can show that performance declines after a certain age it is likely that any retirement age will be subject to challenge and we are likely to see an increase in tribunal cases based on age discrimination from employees who are forced to retire.
The prospect of facing age discrimination claims by forcibly retiring older workers may leave employers with little choice other than to actively performance manage their older staff. An older employee will generally have a limited opportunity to find alternative employment (despite the age discrimination legislation!) and employers will therefore want to avoid age related claims with the high levels of compensation that they may attract. Performance managing underperforming staff does take time and as with any other employee, employers must make sure that they follow a proper and fair procedure and give the employee time to improve. Employers must keep careful notes of these meetings and ensure that any informal performance counselling is recorded and that appraisals are accurate. The performance management process must also be genuine. An older employer is likely to feel particularly aggrieved if having performed his job without complaint for many years, he suddenly is faced with allegations that he is not performing well enough, by coincide when he reaches what would have been his normal retirement age.
Agreeing to part company?
A different tactic may be to encourage employees to retire at say 65 by offering some kind of incentive akin to an enhanced redundancy payment. Any solution along these lines would obviously need to be closely examined before being introduced to ensure that younger staff could not challenge it as being discriminatory in favour of older employees.
Practical effects for employers
Whichever approach a company takes, the Government’s proposals will present employers with a number of issues that need to be addressed within a comparatively short timescale. We would suggest that employers consider the following:
- Review all standard contracts of employment. Once the default retirement age is abolished, employers will not be able to rely on any contractual clauses which refer to a specific retirement age unless they can objectively justify it.
- Adapt work practices and workplaces that will assist older workers to continue to perform a vital role. This may include providing training, or retraining or offering more flexible working arrangements.