30 October 2023|
Are compulsory retirement provisions discriminatory?
Certain firms (such as partnerships) have rules which force employees or partners to retire at a certain age. Are compulsory retirement provisions discriminatory under the Equality Act 2010 (“EqA 2010”)?
The compulsory retirement of an employee may constitute direct age discrimination under section 13(1) EqA 2010, since the treatment would clearly have been meted out solely or principally on the basis of the employee or partner’s age. However, unlike with other forms of direct discrimination, an employer can justify direct age discrimination if it can show that the treatment is a proportionate means of achieving a legitimate aim (see section 13(2) EqA 2010).
In Seldon v Clarkson Wright and Jakes (A Partnership)  ICR 716, a law firm had a compulsory retirement age of 65. The Supreme Court held in that case that the law firm needed to establish that having a retirement clause was justified by the circumstances of the firm as were at the date that the partner was forced to retire.
In order for an employer to defeat a direct age discrimination claim in compulsory retirement cases, it needs to show that the employer-specified retirement age was (i) justified in pursuit of a legitimate aim and (ii) proportionate.
For an aim to be legitimate, it needs to be justified by reference to legitimate objectives of a public interest nature, rather than purely individualistic reasons particular to the employer (such as cost reduction and improving competitiveness). The European Court of Justice (“ECJ”) in Incorporated Trustees of the National Council on Ageing v Secretary of State for Business, Enterprise and Regulatory Reform  ICR 1080 and Fuchs v Land Hessen  ICR 93 provided two broad categories of legitimate social policy objectives: (i) inter-generational fairness; and (ii) dignity.
An example of a policy which pursues inter-generational fairness is where a company implements a compulsory retirement scheme to improve employee retention (e.g., by ensuring that senior employees are given partnership opportunities) and to facilitate succession planning.
When implementing a compulsory retirement policy, a firm might also claim that this is to limit the use of performance management to expel partners or senior employees, and that such an approach furthers the ‘dignity’ aim.
Significantly, the Supreme Court in Seldon held that simply establishing an aim in one of the above categories is insufficient. The employer must show that the aim is legitimate in the particular circumstances of the business concerned. For example, implementing a compulsory retirement age to improve employee retention may not be legitimate where the employer is able to recruit young staff members but struggles to retain older employees.
Once the employer establishes that the discriminatory rule pursues a legitimate aim, it must show that the rule is proportionate to the legitimate aim pursued and reasonably necessary. This, in essence, is a balancing exercise. The reasons for choosing a particular retirement age, the alternatives considered and how the retirement age is applied in practice are some of the key considerations.
For example, when the Seldon case was remitted to the Employment Tribunal (“ET”), the ET held that the provision for retirement at age 65 was justified in all the circumstances and proportionate, as it created opportunities for associates to join the partnership and facilitated succession planning for the firm.
Employers are allowed to use a wide range of factors to demonstrate proportionality. In Hanley v Thomas Sagar Insurances Ltd ET Case No.2400981/14, the ET accepted that a compulsory retirement policy was proportionate in circumstances where the employer consulted employees before the policy took effect, received no opposition during the consultation stage and the employer had taken advice from HR Consultants on how to adapt their business model following a decline in profitability since the 2008 financial crisis.
What to take away
Firms with a compulsory retirement policy are likely to avoid liability if they can establish that the policy is justified in pursuit of a legitimate aim and proportionate and necessary to the aim pursued. For example, given that promoting partnership opportunities for younger employees and succession planning are generally recognised as legitimate aims, it is likely that a partnership can defeat an age discrimination claim provided that it can demonstrate that the policy in question is proportionate.
What’s of interest, however, is that, with longer life expectancies, it is likely that a tribunal may determine that a compulsory retirement age at 60 or 65 (e.g., close to the state pension age) is no longer proportionate. In Willey v England and Wales Cricket Board Ltd ET Case No.2201406/14, although the ET held that a compulsory retirement policy at age 65 was a proportionate means of achieving the legitimate aim of succession planning, the ET commented that in a couple years’ time, 65 might no longer be justifiable and the fixed retirement age might have to increase. Indeed, because of the Pensions Act 2007, the state retirement age for men and women born after 6 April 1978 is going to take place in their 68th birthday.
It is therefore possible that an ET in the future may conclude that a compulsory retirement policy at 60 or 65 is disproportionate in circumstances where the state retirement age is significantly higher and there is an expectation that older individuals will continue to participate in the labour market beyond what is currently accepted as the norm.
Please contact us if you require legal advice.