knowledge | 31 March 2015 |
Retirement Ages – a thing of the past?
Are employers entitled to impose compulsory retirement ages and, if so, how are employers who do have compulsory retirement ages responding to challenges to compulsory retirement and the increase in requests by employees wishing to work beyond retirement age?
What is the Current Legal Position?
As it currently stands Irish law permits employers to prescribe a mandatory age at which its employees must retire. However, due to recent decisions of the Court of Justice of the European Union (“CJEU”) the position is not clear cut and employers must exercise care in dealing with the issue. Given the increase in the State pension age (from 65 to 66 from 2014, to 67 in 2021 and 68 in 2028), the desire of employees to work beyond traditional retirement ages for financial reasons and the fact that people are living longer, the number of challenges to compulsory retirement ages is increasing as are requests for working beyond retirement.
The UK phased out default retirement ages by the end of 2011, and now UK employers are required to be able to objectively justify compulsory retirement ages. A private members bill to entirely abolish compulsory retirement ages in this country was introduced by a Government backbench TD in 2014. It is not yet clear whether the Government will support this bill.
Objective Justification of Compulsory Retirement Ages
The Employment Equality Acts 1998- 2011 (the “EE Acts”) expressly provide that fixing a compulsory retirement age does not constitute age discrimination. The EE Acts are therefore inconsistent with European Council Directive 2000/78/EC which requires that any differences in treatment on grounds of age should be objectively justified by a legitimate aim so as not to constitute discriminatory treatment. Following the European position, in a number of cases the Equality Tribunal has held that an employer must provide objective justification for the imposition of a compulsory retirement age, notwithstanding that no such requirement is stated in the EE Acts.
These cases continue to be followed (with some exceptions). In the case of Thomas O’Mahony v Southwest Doctors on Call Ltd DEC-E2014-031, the Equality Tribunal awarded a driver €12,000 in compensation for discriminatory dismissal on the grounds of age on the basis that the employer did not provide objective justification for the retirement age of 65. The Tribunal found that reissuing contracts to employees to include a retirement age after they commenced employment was an attempt to unilaterally vary their terms and conditions. Furthermore, the Tribunal found that the objective justification put forward by the employer of succession planning was not legitimate in a scenario where it was “not trying to retain younger people or plan for succession; it was simply trying to reduce headcount in the least expensive way”. Similarly, the objective justification of health and safety put forward by the employer was not considered legitimate in the circumstances of the case.
In the case of Richard Lett v Earagail Eisc Teoranta DEC-E2014-076, the Equality Tribunal awarded the complainant €24,000 in compensation for discriminatory dismissal and discrimination. The Tribunal did not accept the reasons advanced by the employer as objective justification for the compulsory retirement age imposed of 65. In relation to two of the reasons advanced, “workplace planning” and “having an age balanced workforce and intergenerational fairness or sharing job opportunities amongst the generations”, the Tribunal found that, whereas in principal they could amount to objective justification, in this case the evidence was that the complainant was never replaced and that the employer advertised externally for a replacement rather than internally. The Tribunal was critical of the employer taking a “one size fits all approach” to setting a retirement age.
In contrast, in the case of John Roche v Complete Bar Solutions DEC-E2013-197, the Tribunal held in favour of the employer on the basis that the policy of compulsory retirement at 65 was objectively justified on grounds that the employer did not wish to lose valuable staff by failing to provide internal promotional opportunities. The case of Hospira v Roper EDA-1315 was distinguished by the Tribunal. In that case the Labour Court held that, in drafting the exceptions to age discrimination in section 34 of the Employment Equality Acts which includes severance payments, the legislature had factored in the objective justification requirements of the European Equal Treatment Directive. The Equality Tribunal in the Roche case held that Hospira only dealt with severance payments and that compulsory retirement still had to be objectively justified.
These cases highlight the importance of employers having genuine objective reasons for compulsory retirement ages and that the facts of each situation will be scrutinised closely by the Tribunal.
The Impact of a Pension Retirement Age
The fact that the retirement age for pension purposes is 65 has been held not to be a legitimate reason for imposing a compulsory retirement age. Most occupational pension schemes provide for normal retirement at 65. An employee who continues in employment after age 65 may, depending on the rules of the scheme and subject to not breaching Revenue limits on maximum benefits, elect to continue to accrue benefits as an active member of the scheme and defer payment of their retirement benefits until they actually retire. Alternatively, the employee may elect to take their retirement benefits, as either a lump sum or pension and lump sum, at their normal retirement date or before they retire.
What Can Employers Do?
- It is advisable for employers to have a retirement policy which is shared with all employees and reviewed on a regular basis and to state the compulsory retirement age in the contract of employment.
- Retirement policies should include, inter alia, the company’s compulsory retirement age, the legitimate business reasons for the retirement age, the impact on pension, a framework for succession planning including training of the next post holder and options, if any, for early retirement or working beyond retirement under a fixed term contract.
- Make a decision as to whether to keep normal retirement age at its current level or raise it to match the State pension age.
- Ensure that if a normal retirement age is being imposed on employees that it is (i) objectively and reasonably justified by a legitimate aim(s) within the context of national law and (ii) the means of achieving this aim(s) must be appropriate and necessary.
- Examples of objective justification endorsed by the courts in particular cases are:
- protecting health and safety for the public and the employee;
- ensuring motivation and dynamism through the increased prospect of promotion;
- facilitation of workplace planning;
- inter-generational fairness;
- avoiding capability disputes with older employees; and
- creating opportunities in the labour market.
- Make the decision to allow/ disallow employees to work past the normal retirement age on a consistent basis and have a clear objective rationale for doing so.
- Grant such requests only in exceptional circumstances so that normal retirement age is not undermined and so that a precedent is not established.
- Be clear about the length of any fixed-term contract entered into after the normal retirement age and the reason for entering into it.
- Be aware of the implications of renewing fixed-term contracts, i.e. fixed-term contracts which are renewed such that in total the duration of the contracts exceeds 4 years may become contracts of indefinite duration.
- Ensure that the fixed-term contract entered into complies with the fixed-term legislation in terms of providing benefits at the same level as comparable permanent employees including pension entitlements, if applicable.
- Review the definitions and rules of any defined benefit pension scheme, check how the retirement benefits (including any temporary or bridging pensions) are calculated to see if there is reference to the State pension being deducted within the benefit formula or within the definitions and take appropriate legal and actuarial advice.
Also contributed by Natasha Canniffe.
This briefing is for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.