Retirement – tread carefully
We take a look at recent changes in the law which leave employers needing to deal with the retirement of staff more carefully.
Employers will now be exposed to potentially large unfair dismissal and age-discrimination claims, unless retirements are carefully handled. Until 6 April 2011, an employer could safely give notice to ‘retire’ staff at the age of 65. Provided the correct statutory process was followed, the retirement would have been ‘fair’, with no age discrimination risk.
However, with the recent change in UK law (to bring it in line with the European Union equality requirements), employers now face the risk of unlimited compensation for a successful age discrimination claim by aggrieved employees feeling forced out after years of loyal service. 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 would have worked for another ten or more years at least. Multiply that by the amount of their annual salary and add the pension contributions they would have received and the employer is facing a very substantial claim.
The safest course for employers is, therefore, to remove retirement ages altogether. Employers can still decide to keep a compulsory retirement age, be it 65 or any other age, but they must do so with careful planning and consideration. An employer must be prepared to accept the inevitable risk that the legitimacy of the compulsory retirement age will be challenged. To run an age discrimination justification defence will require employers to produce concrete evidence to support the chosen age with the onus on the employer showing that the compulsory retirement age was chosen for a ‘legitimate aim’ and that it is ‘proportionate’ to meet that aim for instance workforce planning (the need for business to recruit, retain and provide promotion opportunities and effectively manage succession) or the health and safety of individual employees, their colleagues and the general public. An employer should consider any less discriminatory way of dealing with the issue.
The removal of the default retirement age is an opportunity for employers to review their practices and processes for managing employees and their performance. Employers would be best advised to ignore staff age and rather to performance-manage all staff equally. Where advancing years raise concerns about ill health and/or reliability such issues need to be managed through a normal ill-health capability process.
Employers would be wise to review their retirement policies and develop an appropriate strategy for retirement. Some people want to work beyond 65 and inadequate pension provision means greater numbers of employees will need to work past 65 to ensure they can eventually retire on a reasonable income. Removing the default retirement age allows them to do so. It could also be good news for employers: health and lifestyle improvements should enable many older workers to continue to make a valuable contribution and for employers to benefit from their wisdom and years of experience.