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End of the road for the retirement age?

The coalition government has announced plans to abolish the default retirement age. After next October it will be necessary to justify any retirement date objectively, or to terminate an individual’s employment for some other reason. 

Before 2006, employers could set any age for retirement. The Default Retirement Age was then introduced in relation to employees and was set at 65. Employers can still set an earlier age for retirement, but this now needs to be justified (which is not easy to do).

Consultation

Employees must be consulted between six and 12 months before they reach 65 and can ask to work beyond that age. There is a specific procedure that must be followed, including a right of appeal if the request is not granted. Importantly, the employer does not have to justify refusal to allow an employee to continue beyond DRA.

The government plans that the DRA will cease entirely on 1 October 2011. It will still be possible to terminate somebody’s employment by reason of retirement after that date, but the employer will need to be able to justify this decision objectively. The government is currently undertaking consultation in relation to its plans.

Objective justification

Employers will still be able to operate a compulsory retirement age, but this will need to be objectively justified. It will ultimately be for employment tribunals to decide whether any given retirement age is justified.

The recent case of Seldon v Clarkson, Wright and Jakes (July 2010) may provide guidance in this respect. In this case (which concerned a solicitors’ partnership, where the DRA does not apply) the Court of Appeal ruled that a compulsory retirement age of 65 for partners was potentially justifiable.

The firm had put forward objective factors which included the need to ensure that senior solicitors had an opportunity of partnership, and the need to facilitate partnership and workforce planning. These factors were approved by the employment tribunal, which decided that having a retirement age of 65 was a proportionate means of achieving these aims, and this reasoning has now been approved by the Court of Appeal.

However, in coming to this view the court stated that the current DRA of 65 for employees supported the choice of 65 for partners in this case as a “fair and proportionate cut-off point”. Thus, once the DRA is abolished, it may be that courts will take a less sympathetic view to such arguments.  It should also be remembered that even if a tribunal approves a company’s retirement age in one case, this will not bind a future tribunal in any later challenge by another employee.

Alternatives

If an employer decides to dispense with a compulsory retirement age altogether, an employee’s employment can only be terminated for another fair reason to avoid a successful claim, such as their capability/performance. One difficulty with using capability as a reason for dismissal is that reductions in performance are unlikely to happen overnight, and employers will need to demonstrate that the individual’s performance is being measured against fair, consistent and objective standards.

While the fine detail may change, it seems likely that the DRA’s days are numbered. Employers will need to decide whether to continue with a compulsory retirement age (which will now need to be objectively justifiable), or whether to dispense with retirement ages completely.

Mark Haworth is an associate at HBJ Gateley Wareing LLP