UK Is Considering Abolishing Upper Age Discrimination Limit

For older employees and their employers, all this is set to change as the new UK government is presently consulting on proposals to abolish the default retirement age in October 2011. The abolition of the default retirement age will mean that employers will need to justify any forcible retirement of their UK employees, or else face potential costly claims for unfair dismissal and age discrimination.

Existing UK Case Law

Compulsory retirement is, prima facie, age discriminatory, because the reason for the employee's dismissal is his or her age. The UK, as a member state of the European Union and a signatory to a number of its treaties concerning equal treatment, passed the Regulations in order to implement the provisions of the EC Framework Directive (the “Directive”) with regard to age discrimination. The Directive permits, but does not require, member states to set national retirement ages. The UK national retirement age was subject to a prolonged legal challenge by a charity established to benefit older people, a dispute that ultimately reached the European Court of Justice (The Incorporated Trustees of the National Council for Ageing (Age Concern England) v. Secretary of State for Business, Enterprise and Regulatory Reform, Case C-388/07). The Court determined that a national retirement age of 65 could, in principle, be justified, although it emphasized that it is for national courts in each member state to determine whether the facts and circumstances in the relevant member state support the national retirement age.

Currently, UK employers with company retirement ages set lower than the default retirement age of 65 must justify that retirement age in order to avoid liability for age discrimination. They must be able to demonstrate that the retirement age “constitutes a proportionate means of achieving a legitimate aim” (Section 13(2), Equality Act 2010). On the abolition of the default retirement age, all company retirement ages (or individual retirements in the absence of a company retirement age), will need to satisfy the following test:

• Legitimate Aim: UK case law and government guidance indicate that legitimate aims include retaining employees, creating a career route, facilitating employment planning, contributing to a congenial and supportive workplace culture by limiting scrutiny of older employees' work performance, allowing people to retire with dignity, and the need for a reasonable period of employment before retirement.
• Proportionality: When considering whether the discriminatory effect is proportionate to the legitimate aim, the UK courts will consider whether the legitimate aim could be furthered by less discriminatory means, whether the legitimate aim is actually furthered by the discriminatory means, and whether the progress towards the legitimate aim is sufficient to justify the discriminatory consequence (the cases of Seldon v Clarkson Wright and Jakes ET/1100275/2007 and Baker v National Air Traffic Services Ltd. ET/2203501/2007 exemplify this approach).

Age Makes a Difference

The UK case law on justifying compulsory retirement has, so far, been concerned with employers justifying compulsory retirement ages that are lower than the default retirement age of 65, or have concerned compulsory retirement of non-employees such as partners. These decisions indicate that in order to defend discrimination claims based on retirement after October 2011, an employer will need to adduce evidence of why a particular retirement age rather than any other age is a proportionate means of achieving the legitimate aim, and will need to point to statistical evidence of the impact of the particular retirement ages on the workforce as a key element of justifying the retirement age it has applied.

Upon the abolition of the default retirement age, it will be important for UK courts and employment tribunals to take a pragmatic approach to developing principles concerning the justification of retirement ages. UK employers will need certainty that they will not face litigation every time they retire employees. Employers hope that they will be allowed to use a uniform retirement age for all their employees, or all their employees who perform a similar kind of work, rather than requiring detailed justification on each and every occasion that an employer seeks the retirement of one of its employees. The U.S. experience will be particularly valuable in this regard.

Could the U.S. Experience Aid UK courts?

Upon its enactment in 1967, the federal Age Discrimination in Employment Act (“ADEA”) prohibited discrimination in employment against a class of older employees, defined to include those between the ages of 40 and 65. The ADEA was later amended on two occasions, first to increase the upper limit of the class to age 70, and then to eliminate the limit altogether (except with respect to a limited subset of executive employees).

The experience of employers and statistics available from the U.S. Equal Employment Opportunity Commission (“EEOC”) suggest that factors other than the elimination of the upper age limit on the defined class have had a greater impact on the number of age discrimination charges filed with the EEOC. (The filing of a charge of discrimination with the EEOC is an administrative prerequisite to the commencement of a lawsuit accusing an employer of age discrimination.)

For example, data available from the EEOC's Web site (www.eeoc.gov) shows that from fiscal year 1997 through fiscal year 2007, the number of charges of age discrimination charges filed with the agency fluctuated in a band of between approximately 14,000 and 19,000 per year ' and never exceeded 20,000 in any year. However, with the start of the steep recession in 2008, the number of age discrimination charges filed with the EEOC skyrocketed to 24,582 that year, and remained at an elevated level of 22,778 in fiscal year 2009. As a percentage of all charges, the number of age discrimination charges rose from 21.8 in 2006 to 25.8 in 2008, while during the same period, there was no similar increase in the percentage of race, sex, national origin, religion, disability or equal pay charges. Many corporations implemented substantial headcount reductions in response to the recession, and it is plausible that the impact of these programs on employees in the age-protected class led to an increase in the number of charges filed.

The data does not suggest that in times of economic stability, the elimination of the upward limit on the age-protected class has materially impacted the number of age discrimination charges filed with the EEOC. It is likely that most employers have adjusted their policies to prohibit mandatory retirement of employees, and human resource managers in most companies probably scrutinize decisions related to older workers to assure that such actions are defensible on grounds unrelated to the employee's age. Moreover, the fact that an employee in the United States cannot be forced to retire does not necessarily mean that most employees will alter their retirement plans. Such plans are influenced by many factors other than the definitions of the ADEA ' such as family financial circumstances, health, availability of other opportunities both in an out of the workforce, desire for additional time for non-work-related pursuits, etc.

Conclusion

The U.S. experience of the abolition of an upper age limit on age discrimination claims may give UK employers some comfort. However, the fact that an employee in the UK can avoid the cap on the value of unfair dismissal compensation if that dismissal is related to age discrimination is likely to prove a significant incentive both for employees to try to connect their retirement to unlawful age discrimination, and for employers to take additional steps to justify such retirements. UK employers will have to learn to function without a compulsory retirement age that is immune from legal challenge. The best practice guidance from the U.S. indicates that HR managers should be prepared to scrutinize dismissals of older employees, and should make certain that such decisions are defensible on grounds unrelated to the employee's age.

John D. Shyer, a member of this newsletter's Board of Editors, is a Labor and Employment Law Partner in the New York office of Latham & Watkins LLP. Stephen Brown is an Employment, Benefits and Compensation Partner in the firm's London, UK, office, and Kathryn Donovan is an Associate in that office.

The new government in the UK has announced its intention to abolish the UK default retirement age of 65, effective as of October 2011, and is currently consulting about the impact that this will have on UK employers. The experience of the U.S. courts and employers under the U.S. Age Discrimination in Employment Act may prove useful in predicting the effect of the proposed change.

The UK Legal Changes

At present, the UK Employment Equality (Age) Regulations 2006 (the “Regulations”) allow employers to set a company retirement age, and if this company retirement age is the same as the default retirement age of 65 in the Regulations, the required retirement of employees at that age is immune from age discrimination claims (provided that the retirement procedure stipulated in the Regulations is followed). Employers view this as a valuable protection, as employees in the UK are not employed at will. Employees may only be dismissed if three conditions are met:

1. The dismissal is for one of the six potentially fair reasons (one of which, at present, is retirement);
3. The employer has acted reasonably in treating that reason as sufficient to justify dismissing the employee; and
4. The employer has followed a fair dismissal process.

Failure to comply with these three requirements may expose a UK employer to unfair dismissal liability, which is currently capped at '65,300. However, if the dismissal is connected to some form of prohibited discrimination (which includes age discrimination), the cap is inapplicable and the liability is unlimited. The majority of UK employees gain unfair dismissal protection when they have accrued 51 weeks of service with the same employer.

For older employees and their employers, all this is set to change as the new UK government is presently consulting on proposals to abolish the default retirement age in October 2011. The abolition of the default retirement age will mean that employers will need to justify any forcible retirement of their UK employees, or else face potential costly claims for unfair dismissal and age discrimination.

Existing UK Case Law

Compulsory retirement is, prima facie, age discriminatory, because the reason for the employee's dismissal is his or her age. The UK, as a member state of the European Union and a signatory to a number of its treaties concerning equal treatment, passed the Regulations in order to implement the provisions of the EC Framework Directive (the “Directive”) with regard to age discrimination. The Directive permits, but does not require, member states to set national retirement ages. The UK national retirement age was subject to a prolonged legal challenge by a charity established to benefit older people, a dispute that ultimately reached the European Court of Justice (The Incorporated Trustees of the National Council for Ageing (Age Concern England) v. Secretary of State for Business, Enterprise and Regulatory Reform, Case C-388/07). The Court determined that a national retirement age of 65 could, in principle, be justified, although it emphasized that it is for national courts in each member state to determine whether the facts and circumstances in the relevant member state support the national retirement age.

Currently, UK employers with company retirement ages set lower than the default retirement age of 65 must justify that retirement age in order to avoid liability for age discrimination. They must be able to demonstrate that the retirement age “constitutes a proportionate means of achieving a legitimate aim” (Section 13(2), Equality Act 2010). On the abolition of the default retirement age, all company retirement ages (or individual retirements in the absence of a company retirement age), will need to satisfy the following test:

• Legitimate Aim: UK case law and government guidance indicate that legitimate aims include retaining employees, creating a career route, facilitating employment planning, contributing to a congenial and supportive workplace culture by limiting scrutiny of older employees' work performance, allowing people to retire with dignity, and the need for a reasonable period of employment before retirement.
• Proportionality: When considering whether the discriminatory effect is proportionate to the legitimate aim, the UK courts will consider whether the legitimate aim could be furthered by less discriminatory means, whether the legitimate aim is actually furthered by the discriminatory means, and whether the progress towards the legitimate aim is sufficient to justify the discriminatory consequence (the cases of Seldon v Clarkson Wright and Jakes ET/1100275/2007 and Baker v National Air Traffic Services Ltd. ET/2203501/2007 exemplify this approach).

Age Makes a Difference

The UK case law on justifying compulsory retirement has, so far, been concerned with employers justifying compulsory retirement ages that are lower than the default retirement age of 65, or have concerned compulsory retirement of non-employees such as partners. These decisions indicate that in order to defend discrimination claims based on retirement after October 2011, an employer will need to adduce evidence of why a particular retirement age rather than any other age is a proportionate means of achieving the legitimate aim, and will need to point to statistical evidence of the impact of the particular retirement ages on the workforce as a key element of justifying the retirement age it has applied.

Upon the abolition of the default retirement age, it will be important for UK courts and employment tribunals to take a pragmatic approach to developing principles concerning the justification of retirement ages. UK employers will need certainty that they will not face litigation every time they retire employees. Employers hope that they will be allowed to use a uniform retirement age for all their employees, or all their employees who perform a similar kind of work, rather than requiring detailed justification on each and every occasion that an employer seeks the retirement of one of its employees. The U.S. experience will be particularly valuable in this regard.

Could the U.S. Experience Aid UK courts?

Upon its enactment in 1967, the federal Age Discrimination in Employment Act (“ADEA”) prohibited discrimination in employment against a class of older employees, defined to include those between the ages of 40 and 65. The ADEA was later amended on two occasions, first to increase the upper limit of the class to age 70, and then to eliminate the limit altogether (except with respect to a limited subset of executive employees).

The experience of employers and statistics available from the U.S. Equal Employment Opportunity Commission (“EEOC”) suggest that factors other than the elimination of the upper age limit on the defined class have had a greater impact on the number of age discrimination charges filed with the EEOC. (The filing of a charge of discrimination with the EEOC is an administrative prerequisite to the commencement of a lawsuit accusing an employer of age discrimination.)

For example, data available from the EEOC's Web site (www.eeoc.gov) shows that from fiscal year 1997 through fiscal year 2007, the number of charges of age discrimination charges filed with the agency fluctuated in a band of between approximately 14,000 and 19,000 per year ' and never exceeded 20,000 in any year. However, with the start of the steep recession in 2008, the number of age discrimination charges filed with the EEOC skyrocketed to 24,582 that year, and remained at an elevated level of 22,778 in fiscal year 2009. As a percentage of all charges, the number of age discrimination charges rose from 21.8 in 2006 to 25.8 in 2008, while during the same period, there was no similar increase in the percentage of race, sex, national origin, religion, disability or equal pay charges. Many corporations implemented substantial headcount reductions in response to the recession, and it is plausible that the impact of these programs on employees in the age-protected class led to an increase in the number of charges filed.

The data does not suggest that in times of economic stability, the elimination of the upward limit on the age-protected class has materially impacted the number of age discrimination charges filed with the EEOC. It is likely that most employers have adjusted their policies to prohibit mandatory retirement of employees, and human resource managers in most companies probably scrutinize decisions related to older workers to assure that such actions are defensible on grounds unrelated to the employee's age. Moreover, the fact that an employee in the United States cannot be forced to retire does not necessarily mean that most employees will alter their retirement plans. Such plans are influenced by many factors other than the definitions of the ADEA ' such as family financial circumstances, health, availability of other opportunities both in an out of the workforce, desire for additional time for non-work-related pursuits, etc.

Conclusion

The U.S. experience of the abolition of an upper age limit on age discrimination claims may give UK employers some comfort. However, the fact that an employee in the UK can avoid the cap on the value of unfair dismissal compensation if that dismissal is related to age discrimination is likely to prove a significant incentive both for employees to try to connect their retirement to unlawful age discrimination, and for employers to take additional steps to justify such retirements. UK employers will have to learn to function without a compulsory retirement age that is immune from legal challenge. The best practice guidance from the U.S. indicates that HR managers should be prepared to scrutinize dismissals of older employees, and should make certain that such decisions are defensible on grounds unrelated to the employee's age.

John D. Shyer, a member of this newsletter's Board of Editors, is a Labor and Employment Law Partner in the New York office of Latham & Watkins LLP. Stephen Brown is an Employment, Benefits and Compensation Partner in the firm's London, UK, office, and Kathryn Donovan is an Associate in that office.