In Seldon v Clarkson Wright and Jakes the Supreme Court has confirmed that employers need to give careful consideration when seeking to justify mandatory retirement ages.

Inter-generational fairness and facilitating a dignified exit are confirmed as potential legitimate aims, but employers must show that the identified legitimate aim actually applies to their business and that the particular retirement age chosen is appropriate and necessary to achieve that aim – which will remain difficult to establish.

The Supreme Court has ruled that, to be capable of justifying direct age discrimination, an employer's aim must be (i) of a public interest nature, rather than an individual aim of the business, and (ii) consistent with the social policy aims of the State.  The first part is a change to the test adopted by the Court of Appeal (see our July 2010 ebulletin), which ruled that the aim can relate to the individual business provided it is consistent with the UK social or labour policy behind the age regulations.  However, the distinction may make little difference in practice, given that there appears to be no need for the public interest aim to apply to anyone outside the employer's workforce.

In this case the relevant aims of a retirement age of 65 in a law firm partnership deed were staff recruitment and retention, workforce planning, and avoiding the need to expel partners by performance management.  The Court of Appeal viewed these as individual business aims which were consistent with social policy.  The Supreme Court rejected the contention that they were individual aims of the business and instead described them as directly related to the legitimate social policy aims of inter-generational fairness and dignity, both of which have been accepted as permissible social policy aims at European level.  On either basis, they were legitimate aims.

Lord Hope explained that there is a public interest in promoting employment for young people, planning the recruitment and departure of staff, and sharing out opportunities for advancement in a balanced manner according to age, notwithstanding that the aims will also inevitably be intimately connected with what employers do to advance the interests of their own business "because that is how the real world operates".  Only narrow objectives such as reducing costs or improving competitiveness are likely to be viewed as solely individual business aims.

The Supreme Court made explicit a further step in assessing justification, namely to ask whether the identified aim is legitimate in the particular circumstances of the employment concerned.  For example, improving the recruitment of young people would not be a legitimate aim for a business which has no problem recruiting younger workers.  Likewise, avoiding the need for performance management may not be a legitimate aim for a business which already has sophisticated performance management measures in place for other sections of the workforce.

The final hurdle for employers seeking to justify compulsory retirement is that the particular means chosen to achieve the aim must be appropriate (ie, meet the objective) and reasonably necessary (ie, there are not other, less discriminatory measures which would meet the objective).  The Supreme Court sent the case back to the tribunal to consider whether the chosen retirement age of 65 satisfied this test in relation to each of the objectives.  It ruled that it was proper to take into account the fact that at the relevant time employees were subject to a statutory default retirement age of 65, as this might help to show that the choice of a retirement age of 65 for partners was an acceptable way of achieving the legitimate aim.

The Supreme Court also agreed with the Court of Appeal that:

  • partnerships or employers can justify a retirement age (or other directly discriminatory measure) using an aim which was not specified or in mind at the time it was introduced
  • a retirement age must be justified at the date an individual is retired, both in terms of the general rule but also its application to that individual in the circumstances. However, where it is justified to have a general rule, the existence of that rule will usually justify the treatment of the individual which results from it.  The Supreme Court also noted that, in the context of inter-generational fairness, it is relevant that the partner may well have benefited from the rule at an earlier stage in his life.  The fact that the partners had agreed to the rule in question quite recently was also relevant.


Where does this leave employers?

Following the abolition of the statutory default retirement age, the ruling will be of interest to employers as well as partnerships seeking to use retirement ages.  However, in practice the differences of emphasis between the Supreme Court and Court of Appeal are unlikely to change the position for most employers.

We still do not know whether the age of 65 was justified in this case, but even if the tribunal concludes that it was, this will not necessarily be a green light for others given the importance of the size and culture of the firm in this case and the fact that the abolition of the default retirement age from October 2011 removes a rationale for choosing that age.  We will have to wait and see whether the availability of pension could provide sufficient rationale for choosing a cut off or whether it will be necessary to compile industry/employer-specific evidence on the impact of specific retirement ages on recruitment/retention or succession-planning.

It is also worth noting that employers with sophisticated performance management tools are unlikely to be able to rely on the "dignity" aim, and employees will rarely be seen as having equal bargaining power and therefore having agreed to the retirement rule (which the Supreme Court considered a relevant factor).  (Indeed the same may be said for partners in some of the larger partnerships.)

Those employers who have chosen to retain compulsory retirement ages should review their position and keep a close eye on this case as it returns to the tribunal.  Legal challenges are likely only to increase, given that a recently published report by the Pensions Policy Institute has concluded that nearly half of employees over 50 may have to keep working well into their late 70s to achieve their target retirement income.