Retirement rule may slow pace of change
Retirement is likely to be the last thing on the minds of those in the Fastest 50. But as Ward Hadaway employment partner Joe Thornhill outlines, this is something which all employers will have to address with some urgency.
SUCCESSFUL companies such as those in the Fastest 50 cannot achieve their goals without the help of their workforce.
Managing your staff is a key skill in the business world, but employers are now having to face up to a looming problem on the horizon – retirement.
Earlier this year, the Government committed itself to abolishing the right of an employer to force employees to retire at 65.
At the moment, if an employer adheres to a simple set of procedures, an employee can be forced to retire at any time once he or she is aged 65. In practice, the only constraint on an employer is that the procedure may require the employer to wait six months before forcing the employee to retire. Following a long-running case brought by Age Concern, the previous Labour Government agreed to review the law.
A consensus developed that employees should be able to work beyond the age of 65 if they wish. The general expectation was that the retirement age would be increased to 67 and then in time to age 70 and then, perhaps in time, removed entirely.
However, the Coalition Government has decided to remove the retirement age entirely in October 2011, much sooner than expected. This will create very significant management difficulties for many businesses.
Under the new law, it is proposed that the employer will have to show that the decision to retire someone is objectively justified and a “proportionate” means of achieving a “legitimate aim”. An aim is “legitimate” if, for example, it relates to economic factors such as the needs and efficiency of running a business.
“Proportionate” means that what the employer is doing is the only reasonable way to achieve the legitimate aim, and has a discriminatory effect which is significantly outweighed by the benefits of achieving that aim.
It is a little difficult to determine how these rules will work in practice but an employment tribunal will no doubt give short shrift to an employer who argues that a dismissal is objectively justified because it removed a higher paid older worker to cut the wages bill.
However, a recent Court of Appeal decision seems to suggest that it is possible to justify a fixed retirement date by producing evidence that it was necessary to give opportunity for promotion and facilitate long-term planning of the workforce by having a realistic expectation as to when vacancies would arise.
In light of this case, a sweeping statement suggesting that employees can now work for as long as they like is misleading.
However, any employee forced to retire will still be free to challenge the decision, when at present the employer has certainty that litigation is very unlikely.
Further, any challenge will involve a difficult legal process and, if successful, the award is likely to be significant.
As a consequence, any decision to force an employee to retire will have to be planned and considered with extreme care and a significant legal risk is likely to be present.
Employers may decide not to take the risk and to allow the employee to continue to work.
As a result, it may not be uncommon for employees to be aged into their late 60s and early 70s.
While this may sound reasonable to some, at a time of economic difficulty when youth unemployment continues to rise, an alternative viewpoint is that this change in the law is not fair.
Further, if employees have to continue to work into old age when they are not fit to work, then employers may be faced with a difficult and sensitive dismissal process on the basis of poor health.
For further information on any of the issues raised by this article, please contact Joe Thornhill on 0191 204 4321 or email joe.thornhill@wardhadaway.com
