Mandatory Retirement – Where are we now?

 

Background

Pension disputes and retirement have been in the news of late. Towards the end of 2013 three high profile pension related industrial disputes were in the headlines involving ESB, Aer Lingus and Marks & Spencer. High Court pension litigation has also arisen with at least two significant legal challenges – Element 6 and ESB again - and pension litigation generally is increasing. At a more mundane level there is a high level of employee concern around pension rights and mandatory retirement. Factors such as the general economic downturn of recent years, employer changes to occupational pension schemes and the diminishing returns for many previously “safe” schemes have all heightened employee focus. Many employees are considering whether they should, and indeed can, work beyond their retirement age. Now add to the mix that, as of 1 January 2014, the state pension age increased to age 66 (and in later years to 67 and then 68). As a result of these developments, pensions / retirement related litigation is on the rise. There has been a significant increase in such litigation with reported case law from Ireland, U.K. and the EU courts on challenges to mandatory retirement. The purpose of this note is to advise employers on how to limit the risk of, prepare for and ultimately defend any challenges to mandatory retirement ages.

Do you have a retirement age?

The first point for employers to check is whether they have a contractual retirement age in place.  It is an obvious but important starting point. It will provide a full defence to a claim under the Unfair Dismissals Acts. Ideally employers need express terms in a contract of employment or other contractual documentation. There are a surprising number of situations, often with longer serving employees, where there is no contract of employment or only one that is silent on contractual retirement.  Nevertheless, there are other factors on which an employer can rely to prove a contractual retirement age such as custom and practice over the years. Awareness of an established practice of employees traditionally retiring at a set age may be enough to prove an implied contractual term.  Courts and tribunals have been reasonably sensible over the years about inferring this where the facts suggest it.

Age discrimination

More difficult issues arise under the Employment Equality Acts, even where there is a clear contractual retirement clause. Some recent litigation looks at whether forcing retirement because of age constitutes age discrimination.  As with much Irish employment law, age discrimination rules have an EU law origin. EU law interpretation in this area will determine how Irish courts and tribunals handle employee complaints. Such case law has clarified that while contractual retirement ages are not automatically unlawful, they may constitute age discrimination unless objectively justified.

What is Objective Justification?

This is not prescriptively defined but case law provides that an employer’s aims in setting a contractual retirement age may be social, demographic, budgetary or in the public interest. Costs alone will not be a legitimate aim. What does this mean in practical terms? An analysis of case law provides some guidance for employers. Examples of objective justifications affirmed by Irish, UK or EU courts in specific cases include:

• Creating opportunities in the labour market for persons seeking employment;
• Establishing a balanced age structure, encouraging recruitment of young people and preventing disputes about the performance of older people;
• Inter-generational fairness or preserving the dignity of older workers;
• Motivation and dynamism through the increased prospect of promotion;
• To ensure that vacancies became available in order to encourage the recruitment and promotion of younger people;
• Desire to avoid capability issues;
• Health and safety concerns for the public and the employee – generally only applicable to employees in more safety critical occupations;

Many of these can be very broadly described as succession planning or intergenerational fairness. Health and safety justifications may apply in some other cases. Equally instructive are cases where employers have fallen foul of requirements. The following has been held not to constitute objective justification:

• The employee’s pension becoming payable.

Recommendations for Employers Employers have a number of options in light of the change to State Pension Age:

1. Maintain current retirement age and continue to objectively justify;
2. Change retirement age to State Pension Age and objectively justify;
3. Remove retirement age.

Our experience is that a considerable majority of employers prefer to maintain current retirement ages and continue to objectively justify that. Few have removed retirement age completely. This is backed by a recent IBEC survey which indicates that a strong majority of employers take this view. It is important for such employers trying to justify retirement ages to be able to provide supporting evidence. How does an employer show that they have a policy of mandatory retirement as part of its succession planning policy? Options are to introduce a written retirement policy which specifies retirement age and the objective reasons for same or, possibly, to pass a board resolution identifying such objective. Any such policy should specify the circumstances where working beyond the retirement age will be considered. Of course employers should ensure that retirement age in contracts of employment, handbooks and retirement policies are consistent. It is also good practice to engage with employees in advance of retirement, even if not legally obliged to do so.

How to handle requests by employees to work beyond mandatory retirement age

Every such request needs to be reviewed on its own merits and blanket refusal without consideration should be avoided. Ultimately it is for the employer to decide. However, the following should be considered:

1. The broader implications (pension scheme rules, income protection, PHI benefits etc.);
2. What does the retirement policy / board resolution specify?;
3. If granted, offer the employee a fixed term contract for the period beyond retirement age. That fixed term contract should state the reason the contract is being offered and that retirement will take effect on expiry;
4. Requests should only be granted in exceptional circumstances otherwise objective justification for normal retirement age will be undermined;
5. Treat requests consistently.

  Barry Walsh Head of Employment & Benefits  14 January 2014 Please contact Barry Walsh at bwalsh@mcdowellpurcell.ie or Julie O’Neill at joneill@mcdowellpurcell.ie for any advice on the issues in this article. Remember that this article is for information purposes only and does not constitute legal advice. Case law is fact specific and readers should understand that similar outcomes cannot be assumed. Specific advice should always be taken in given situations.