New no-retirement law: could it be a win-win for your staff and firm?


Date: 16 February 2011

IplannedEmployment expert Mike Scutt explains what employers need to do now for the DRA and why workers and bosses can both benefit if they keep it legal

If there is one issue that will exercise employers more than any other this coming year it is the abolition of the Default Retirement Age (DRA), which will take place over a rolling period between April and October. It's the logical conclusion of the Age Discrimination legislation introduced in 2006 and now enshrined in the Equality Act 2010.

Before the Employment Equality (Age) Regulations 2006 were introduced, a person could be dismissed because they were too old (or too young), with impunity. Employees had to retire at 65, or whatever age the employer had set. The Regulations changed all that by providing that it was illegal to discriminate on the grounds of age, unless the employer could objectively justify their actions as being a proportionate means of achieving a legitimate aim. Employees could ask to work beyond retirement age and there was a procedure to be followed, which if breached could lead to penalties and even an unfair dismissal claim.

An organisation called Heyday, part of Age Concern, commenced a long-running court action arguing that the Regulations were contrary to European law (in particular the EC Equal Treatment Framework Directive). Eventually, Heyday lost but not before the (then) government announced a review of the DRA. In turn that led the current government to announce that the DRA will be abolished.

Action to take now

In other words, from 6th April this year it will no longer be possible for employers to issue any notice of intention to retire and from 1st October 2011 employers will not be able to compulsorily retire employees. Makers of gold watches and clocks will, no doubt, be upset at this. Notifications given before the 6th April will still be valid.

However, it is not quite that simple. Employers will be able to retain a DRA, provided they can justify imposing a retirement age, which will henceforth be known as an "Employer Justified Retirement Age" (EJRA). As above, the test for justifying making employees retire at a certain age will be an objective one and it must be a proportionate means of achieving a legitimate aim. ACAS has produced a useful booklet called "Working without the Default Retirement Age" which states that the test of objective justification will not be an easy one to pass and will require evidence to support it in case it is challenged.

As Sir Humphrey Appleby might have said, it will be a courageous business that seeks to impose an EJRA on its workforce. The risk of getting it wrong could lead to very substantial claims. In some cases, such as where a good level of physical fitness is required (Acas gives as examples the emergency services and air traffic controllers) an EJRA may be justifiable. However, in respect of those of us pushing pens or tapping on keyboards, the situation might be harder.

Is there an answer, or will offices and factories become inhabited by an increasingly old workforce? Yes to both - and why not?

Employers will need to rely on performance management processes to a greater extent than they do already. For an interesting article on this see here. No longer will it be enough just to wait for time to pass and then say goodbye to that awkward old cuss in accounts once they hit 65. Employers will also need to be more aware of health and disability issues as employees get older and be prepared to make reasonable adjustments to work duties.

How can my firm avoid trouble?

The good old law of sod suggest that many employers, especially smaller ones, will not do anything of the sort and will either ignore the legislation altogether, or will try and do it via the "back door" and land themselves in front of an Employment Tribunal facing a claim for age discrimination. Unlike unfair dismissal claims where Employment Tribunals are prevented from awarding more than £65,300 in compensation, discrimination claims have no maximum statutory cap to them, so potentially the awards could be very large. The reason for this is that a 65-year old employee who succeeds in persuading an Employment Tribunal that he/she was dismissed because of their age will likely argue that they have no chance of getting another job and but for being dismissed would have worked for another ten or more years, at least. Multiply that by the amount of their annual salary and add in the pension contributions they would otherwise have received and the employer is facing a very substantial claim.

I think it likely that we will see a marked increase in the number of age discrimination claims arising from the abolition of the DRA. What should employers be doing now to avoid this calamity?

  1. Update their contracts of employment and employee handbooks to remove references to the DRA, or other compulsory retirement age.
  2. Review the benefits packages given to employees, although the government has announced in principle that it will not constitute age discrimination for an employer not to provide an insurance benefit to older workers if it would be too expensive to do so. Other benefits and provisions (such as share schemes) will need to be looked at.
  3. Institute proper performance management criteria and processes and then implement them.

Could my firm actually do well from the new law?

It is common for lawyers to issue dire threats about how employers are going to be sued for every last penny unless they get on top of the latest bit of legislation. Let me offer a word of comfort: we may be worrying unnecessarily. Many employees will, no doubt, want to work beyond 65 or may have to if their mortgage is large or their pension provision is ungenerous. Apart from this though, many employees may well have had enough of work by the time they get to their late 60s and be ready to start living life (which now starts at 60 apparently). They will be only too happy to go. Businesses will also benefit from having the experience and knowledge that older people bring to a job. I think this is a piece of legislation that, for once, offers a win-win to everyone concerned.

Michael Scutt, Dale Langley & Co

What does the * mean?

If a link has a * this means it is an affiliate link. To find out more, see our FAQs.