Age Discrimination, an Update

Helen O'Brien writes:

1. Introduction

One key difference between age discrimination and discrimination on grounds of the other protected characteristics is that direct age discrimination is open to the possibility of justification. To be justified, the employer’s age discriminatory actions must be shown to be proportionate to the achievement of a legitimate aim, writes Stuart Chamberlain, Croner author and employment law expert.

This is a two-part requirement, i.e. the employer must, first, show that there was a legitimate aim underpinning its actions and, second, that its treatment of the employee in question was proportionate to the achievement of that aim. “Proportionate” in this context has been held to mean necessary, appropriate and not excessive.

2. Justification of age discrimination

One important recent case that dealt with the question of whether direct age discrimination was justified was Woodcock v Cumbria Primary Care Trust [2012] EWCA Civ 330. The claimant, whose role of Chief Executive was redundant following a restructuring, was given 12 months’ notice of dismissal by reason of redundancy before the normal redundancy consultation process had been fully carried out. The result of this was that his employment terminated shortly before his 50th birthday depriving him of early retirement benefits worth in excess of £500,000.

The Court of Appeal ruled that the employer’s actions amounted to direct age discrimination, but were justified. The legitimate aims relied on by the employer were to achieve redundancies in a cost-effective manner and prevent the employee in question from benefitting from a huge windfall at tax-payers’ expense. Taking into account that the claimant had never had any realistic or legitimate expectation of receiving the enhanced retirement benefits, and that he would have been made redundant soon afterwards anyway, the court also ruled that the employer’s actions amounted to a proportionate means of achieving the stated aims.

Although previous UK and EU case law (including for example Cross v British Airways [2005] IRLR 423) has demonstrated that cost savings or cost avoidance alone cannot justify discrimination, the courts have also stated that cost may be taken into account along with other relevant factors, in establishing whether age discrimination is justified. In the Woodcock case, there was another relevant factor over and above the desire to save costs, namely the need to make redundancies in a cost-effective manner. This, the court held, was a legitimate aim and, in the particular circumstances, the treatment of the claimant had been proportionate to the achievement of that aim. The court took the view that the discriminatory effect of the treatment on the claimant was outweighed by the needs of the trust.

3. Retirement

Although the default retirement provisions were abolished in April 2011, there may still be some compulsory retirements under those provisions that have not yet been completed, i.e. where the employee submitted a request not to retire on the notified date and the employer agreed to an extension of his or her employment.

Where an employer did agree to an employee’s request to stay on beyond the notified retirement date, this may have been for a defined limited period or on an open-ended basis. If an extension for a fixed period of six months or less was agreed, the employee can be compelled to retire on the agreed date without the need for the employer to follow any further procedure. The latest possible date that an employee could be retired in this way would be 5 October 2012 — i.e. if the maximum notice period of 12 months was given on the last possible date (5 April 2011) and the employer and employee then agreed to a six-month extension, making the employee’s retirement date 5 October 2012. If, however, the employer agreed to an extension of more than six months, it will not be possible to compel the employee to retire at any later date under the default retirement provisions as the procedures have been repealed.

4. Justification of mandatory retirement age

The European Court of Justice (ECJ) has in recent times dealt with a number of cases concerning mandatory retirement ages and whether they can be justified. One of these is the German case of Fuchs und Kőhler v Land Hessen [2011] ECJ C-159/10 and C-160/10, in which a challenge was brought against the compulsory retirement of state prosecutors at age 65 by two prosecutors whose requests to stay on for a further year were rejected.

The main aims on which the employer’s retirement age was based were:

• to create a balanced age structure, thus contributing to the quality of the work
• the need to plan staff departures
• to encourage the recruitment and promotion of younger people (taking into account that the number of available posts was limited)
• to avoid performance disputes with older employees.

The ECJ held that these aims were in the public interest as they would be likely to ensure a high-quality public justice system, and so were legitimate.

The ECJ went on to rule that the measures adopted did not go any further than necessary to achieve the stated aims, i.e. they were proportionate and thus justified. In making this judgment, the ECJ took into account that:

• the employees could retire on a generous pension — equating to 72% of their salary
• they had the possibility of working on until age 68 by agreement if this was in the interests of the service — i.e. there was some flexibility
• they could continue to work in a different role with no age limit — i.e. options other than retirement were available to them.

The ECJ also reiterated in this case that, although it is lawful to take cost considerations into account, cost saving alone cannot constitute a legitimate aim.

One of the key issues that has been debated in the courts in recent years is whether the test for justifying direct age discrimination is different from, or more onerous than, that for indirect discrimination. Neither the Equality Act 2010, nor the earlier Employment Equality (Age) Regulations 2006 make a distinction between the tests for justifying direct and indirect age discrimination. The EU Framework Directive (No 2000/78/EC), however, uses slightly different wording in respect of each.

This issue has now been addressed by the Supreme Court in Seldon v Clarkson Wright and Jakes [2012] UKSC 16. The case concerned Mr Seldon, a partner in a law firm, who, in accordance with the firm’s partnership deed, was forced to retire by the end of the December following his 65th birthday. He brought a claim of direct age discrimination before an employment tribunal, which was eventually appealed through to the Supreme Court. Although the relevant events took place before the abolition of the default retirement provisions, the firm, in order to defend the claim, had to objectively justify its policy of retiring partners at age 65 because the default retirement provisions applied only to direct employees and not to other workers (e.g. partners). It was accepted by the tribunal that Mr Seldon had suffered direct age discrimination and so the key issue to be determined was whether his treatment was justified.

The key legitimate aims on which the employer sought to rely were:

• ensuring that solicitors were given the opportunity of partnership after a reasonable period of service as an associate, thereby encouraging them to remain with the firm
• facilitating the planning of the partnership and workforce by having realistic long-term expectations as to when vacancies would arise
• limiting the need to expel partners by way of performance management, thus contributing to the congenial and supportive environment in the firm.

The Supreme Court ruled that these aims were legitimate, but remitted to the tribunal the question of whether the application of a retirement age of 65 was appropriate and necessary in order to achieve them. In deciding this point, the tribunal will have to consider whether the stated aims could have been met by a retirement age other than 65.

An important element of this case was that the Supreme Court held that for direct age discrimination to be justified (as opposed to indirect age discrimination), the legitimate aims relied on must be legitimate objectives of a public interest nature as specified in the Framework Directive (such as employment policy, labour market objectives or the promotion of vocational training); they cannot be aims particular to the specific employer, such as business efficiency or improving competitiveness. The Supreme Court decided that the aims identified by the employer in the Seldon case fell within two of the categories of social policy/public interest objectives identified by the European Court of Justice, namely “inter-generational fairness” and “dignity”.

The need to rely on a social policy objective in order to justify direct age discrimination would appear to prevent private-sector employers from citing a business reason specific to them as the legitimate aim underpinning any incidence of direct age discrimination, including compulsory retirement. In contrast, an employer that seeks to justify indirect age discrimination may cite aims specific to the business to justify their policies or practices.