A Happy Retirement?
30 May 2012
On 25 April 2012, the Supreme Court gave judgment in the long awaited case of Seldon -v- Clarkson Wright & Jakes (a partnership). The case concerned the circumstances in which an employer (or partnership in this case) could force retirement on a member of staff. So has the case given us clear guidance on the circumstances in which retirement can be imposed?
Leslie Seldon was an equity partner in a North Kent firm of solicitors. Mr Seldon joined the firm in 1971 and became an equity partner in 1972. There had been a number of partnership deeds and, in 2005, the firm entered into a new partnership deed – but the content was the same as previous ones in relation to retirement. The partnership deed imposed retirement on partners at the age of 65 unless agreed otherwise. In 2006, Mr Seldon, who had previously been senior partner and managing partner, reached the age of 65. He asked to stay on because he could not afford to retire. His requests to stay on were refused but the partnership offered him a £30,000 ex gratia payment. When he threatened an employment claim, they withdrew the offer. He brought a claim for unfair dismissal and direct age discrimination and claimed that the withdrawal of the ex gratia offer amounted to victimisation.
The statutory framework relating to Mr Seldon’s claim is complex, as is the associated case law, and it is instructive to consider that before looking at how the Supreme Court dealt with Mr Seldon’s case.
Before 1 October 2006, retirement was a matter of contract and employer and employee were free to agree a contractual retirement age. If the contract was silent as to retirement and there was no normal retirement age, the employee could continue to work until he chose to retire or until his employer terminated his contract. The only relevant statutory provision was that the employee could not bring an unfair dismissal claim once he had reached normal retirement age or, if none, the age of 65.
On 1 October 2006, the position changed significantly, with the coming into force of the Employment Equality (Age) Regulations 2006 (“the 2006 Regulations”). These removed the ceiling of 65 years for an employee bringing an unfair dismissal claim and introduced retirement as a potentially fair reason for dismissal. The reason for dismissal was retirement if (a) there was no normal retirement age but the employee had reached the age of 65 and the employer complied with a straightforward consultation procedure or (b) there was a normal retirement age which was 65 or more and the employer had, again, complied with a simple consultation procedure or (c) there was a normal retirement age which was below the age of 65 which the employer could justify and, again, the employer complied with a simple consultation procedure.
The 2006 Regulations contain three provisions of particular relevance to Mr Seldon’s case:
Regulation 3(1): “For the purposes of these Regulations … A discriminates against … B if
(a) on grounds of B’s age, A treats B less favourably than he treats or would treat another person [i.e. this provision prohibited direct discrimination] or
(b) A applies to B a provision, criterion or practice which it applies or would apply equally to persons not of the same age group as B but (i) which puts or would put persons of the same age group as B at a particular disadvantage when compared with other persons and (ii) which puts B at a disadvantage [i.e. this part prohibited indirect discrimination]
and A cannot show the treatment or, as the case may be, provision, criterion or practice to be a proportionate means of achieving a legitimate aim.”
Regulation 17(1): “It is unlawful for a firm, in relation to a position as partner in the firm, to discriminate against a person … in the way they afford him access to any benefits … or by expelling him from that position or subjecting him to any other detriment.”
Regulation 30(1): “The Regulation applies in relation to an employee …
(2) Nothing … shall render unlawful the dismissal of a person … at or over the age of 65 where the reason for the dismissal is retirement.”
Consequently, Regulation 3 of the 2006 Regulations prohibited both direct and indirect discrimination unless the employer could show that its conduct was a proportionate means of achieving a legitimate aim. Regulation 17 extended the protection to partners in firms. Regulation 30 in effect introduced a default retirement age of 65, allowing employers to dismiss employees once they had reached the age of 65, without fear of an age discrimination claim, but it afforded this protection only in relation to the compulsory retirement of employees.
The law changed again on 1 October 2010, when the Equality Act 2010 came into force. The Act contained the following provision relating to age discrimination:
Section 13(1): “… A discriminates against … B if, because of a protected characteristic, A treats B less favourably than A treats or would treat others.
(2) If the protected characteristic is age, A does not discriminate against B if A can show A’s treatment of B to be a proportionate means of achieving a legitimate aim.”
So, the provisions relating to direct age discrimination in the old Regulation 3 of the 2006 Regulations were repeated in the Equality Act, retaining basically the same meaning.
On 6 April 2011, there was a further change in the law: the Employment Equality (Repeal of Retirement Age Provisions) Regulations 2011 (“the Repeal Regulations”). These provided that retirement at or above the age of 65 was no longer an exception to the protection against age discrimination. Furthermore, retirement was no longer a potentially fair reason for dismissal and, to avoid an unfair dismissal claim, the employer had to show the dismissal was for some other substantial reason. Consequently, the effect of the Repeal Regulations was to abolish the default retirement age: from now on, every retirement at any age, whether in relation to an employee, worker or partner, had to be justified.
Because Mr Seldon was retired in 2006, his claim was brought under the 2006 Regulations but the Supreme Court’s decision in this case is also relevant to the retirement provisions in the Equality Act, because Regulation 3 of the 2006 Regulations was re-enacted in Section 13(1) and (2) of the Equality Act 2010. Although the provisions relating to the default retirement age were in force at the time of Mr Seldon’s retirement, they were not of course applicable to his case, as he was a partner and not an employee. Consequently, the introduction and subsequent abolition of the default retirement age was not, directly at least, part of this case.
On the face of it, Mr Seldon’s case was straightforward: the act of forcible retirement was direct age discrimination and so the question was whether that was a proportionate means of achieving a legitimate aim. There was, however, a legal twist to the case. The provisions governing direct and indirect discrimination in the 2006 Regulations (and consequently the provisions relating to direct discrimination in Section 13 of the Equality Act 2010) were introduced to give effect to the Framework Directive for Equal Treatment in Employment and Occupation (2000/78). The Directive provided as follows:
Article 2
“1 …there shall be no direct or indirect discrimination …
2 … (a) direct discrimination shall … occur where one person is treated less favourably …
(b) indirect discrimination shall … occur where a … provision, criterion or practice would put persons having … a particular age … at a particular disadvantage … unless
(i) that provision, criterion or practice is objectively justified by a legitimate aim and the means of achieving that aim are appropriate and necessary …”
So, this part of the Directive provided that indirect discrimination could be justified through proportionate means to achieve a legitimate aim. Clearly, Section 2 did not allow the employer to justify direct discrimination – but other provisions of the Directive did permit direct discrimination in certain circumstances:
Article 6(1)
“1 … member states may provide that differences of treatment on grounds of age shall not constitute discrimination if, within the context of national law, they are objectively and reasonably justified by a legitimate aim, including legitimate employment policy, labour market and vocational training objectives and if the means of achieving that aim are appropriate and necessary.
Such differences of treatment may include …
(a) the setting of special conditions on access to employment and vocational training, employment and occupation, including dismissal and remuneration conditions, for young people, older workers and persons with caring responsibilities, in order to promote their vocational integration or ensure their protection;
(b) the fixing of minimum conditions of age, professional experience or seniority in service for access to employment or to certain advantages linked to employment;
(c) the fixing of a minimum age for recruitment which is based on the training requirements of the post in question or the need for a reasonable period of employment before retirement.”
So, it appeared that Article 6 of the Directive contained a special rule for direct age discrimination: it could be justified on the basis of national social policy aims. The problem is that this wording does not appear in Regulation 3 of the 2006 Regulations, nor indeed in Section 13 of the Equality Act 2010. So, the question arises as to whether direct discrimination, unlike indirect discrimination, can only be justified on the basis of national social policy aims and, if so, what that is supposed to mean. Clearly, social policy aims are likely to vary with time and are likely to conflict: for example, there is obvious conflict between the need to get young people into the workforce and the need to keep older workers in employment as long as possible to avoid them being a drain on the state pension. Furthermore, national social policy aims are obviously a matter for the government, not individual employers, and so how are employers supposed to apply these vague and variable principles? Clearly, the sort of factors likely to be relevant to the employer, such as cost reduction or improving competitiveness, will not fall into the category of national social policy aims.
This issue was tackled in R (Age Concern England) -v- Secretary of State for BERR [2009] ICR 1080. Age Concern (now Age UK) argued that the UK government had to spell out the circumstances in which age discrimination might be justified. The court decided that “…the aims which may be considered “legitimate” … are social policy objectives, such as those related to employment policy, the labour market or vocational training … those legitimate aims are distinguishable from purely individual reasons particular to the employer’s situation, such as cost reduction, improving competitiveness, although … a national rule may recognise … a certain degree of flexibility for employers”.
“[Article 6(1)] imposes on [member states] the burden of establishing to a high standard of proof the legitimacy of the aim pursued.”
The Age Concern case returned to the UK Administrative Court in September 2009, by which time a number of European cases on age discrimination had been decided. The court held that Regulations 3 and 30 of the 2006 Regulations (although of course Regulation 30 – relating to the default retirement age – was later repealed anyway) were compatible with the Directive and that the “private employer is not allowed the wider margin of discretion … that the state is” and that there was “a clear distinction between the government as a public body being concerned about the social cost to competitiveness of UK employment … and individual business saying that it is cheaper to discriminate than to address the issues …”.
Unsurprisingly, Mr Seldon argued that, notwithstanding the wording of Regulation 3 of the 2006 Regulations (now Section 13 of the Equality Act 2010), direct discrimination could only be justified if it satisfied national policy aims. He argued that Regulation 3 of the 2006 Regulations had “lumped together” the exemptions relating to direct and indirect discrimination to state that the employer could avoid findings of either direct or indirect discrimination if it could establish that it used a proportionate means to achieve a legitimate aim.
Clarkson Wright & Jakes argued that, even if that was the case, the forced retirement of Mr Seldon was justified because (i) it enabled associates to move up the ranks to partnership status and enabled them to see when vacancies would arise (ii) it facilitated the planning of the partnership and (iii) it reduced the need for partners to be expelled for poor performance as age advanced and thus improved the working atmosphere of the firm (the “collegiality” argument).
In the Employment Appeal Tribunal and the Court of Appeal, the first two arguments were accepted and consequently Mr Seldon’s claim failed. The third argument of the employer did not, however, succeed, because the only statistical evidence which the employer could produce tended to show that performance did not start to deteriorate until the age of 70 and consequently a retirement age of 65 could not be justified on that ground. The Court of Appeal then remitted the case back to the Employment Tribunal to determine whether the retirement age of 65 could be justified, but Mr Seldon responded by appealing the case to the Supreme Court.
The Supreme Court decided that it was clear that the Directive intended that direct discrimination could be justified only if it satisfied national social policy aims. The court reviewed the European case law on age discrimination (and a substantial body of case law had built up over the previous few years) and concluded that legitimate aims in relation to direct discrimination could include:
• Promoting access to work for youngsters
• Planning the efficient departure and recruitment of staff
• Sharing employment opportunities between the generations
• Ensuring a mix of a generations to establish experience and new ideas
• Rewarding experience
• Cushioning the blow of dismissal for long serving employees
• Avoiding the need to dismiss employees for deteriorating performance
• Avoiding disputes about fitness for work as age advances
The court recognised that social policy aims could change over the years in response to economic and other pressures and consequently it had been appropriate for Regulation 3 of the 2006 Regulations to be drafted in flexible terms. The court decided that the United Kingdom had clearly chosen to give employers flexibility to choose their objectives as long as they were (i) legitimate objectives of a public interest nature (ii) consistent with the social policy aims of the state and (iii) proportionate.
The court went as far as to say that these aims need not have been articulated or even realised by the employer at the time that the compulsory retirement policy was drawn up.
The court also decided that, where introducing a general retirement rule was justifiable, any treatment of employees which resulted from that rule would also be justified – i.e. there was no need to take account of the specific, individual circumstances of the employee.
Turning to the three arguments which Clarkson Wright & Jakes had advanced in support of its enforced retirement age, the court decided that they were indeed social policy aims and were legitimate. Mr Seldon’s argument that these three reasons were the employer’s own selfish reasons was rejected: the reasons amounted to social policy aims as well and consequently were legitimate.
Consequently, Mr Seldon’s claim failed.
What this does not mean, however, is that employers can now impose compulsory retirement on staff at whatever age they feel appropriate. The Supreme Court has remitted the case back to the Employment Tribunal for it to decide whether the choice of 65 for forced retirement in Mr Seldon’s case did constitute a proportionate means of achieving a legitimate aim – and the context of this was the failure of the employer to produce any clear evidence that performance in that particular type of work showed a marked deterioration by the age of 65. We will therefore have to await the decision of the Employment Tribunal in that regard – and of course that decision itself may well be appealed.
Furthermore, one also has to take into account some particular circumstances of this case which are unlikely to be applicable to the world of work generally. To begin with, Mr Seldon was an equity partner in his firm of solicitors. He had been with the firm for 35 years and, for most of that time, as a partner. He had equal bargaining position to that of his fellow partners and had freely agreed to a partnership deed which provided for compulsory retirement at the age of 65. One can well understand, therefore, the reluctance of the tribunals and courts which heard Mr Seldon’s case to be particularly sympathetic towards his position; by contrast, the great majority of employees in the workplace will simply have had to sign up to a contract of employment which provides for a retirement age over which they had no say. One can therefore imagine employment tribunals being somewhat more sympathetic to employees in this position.
Another point which was clearly in the Supreme Court’s mind was the fact that the default retirement age of 65 was in force at the time of Mr Seldon’s enforced retirement (notwithstanding the fact that, as a non-employee partner, the default retirement age did not apply to him) and this factor may have encouraged the firm to reach its decision to impose retirement at 65 on Mr Seldon.
Despite the complexities of Mr Seldon’s case, it was not the only judgment on an age discrimination case handed down on 25 April 2012. On the same day, the same Supreme Court handed down judgment in the case of Homer -v- Chief Constable of West Yorkshire Police [2012] UKSC 15. Mr Homer had been a police officer but had subsequently become a legal adviser to the Police National Legal Database. In 2005, his employer introduced new pay grades and, to qualify for the top grade, the employee needed to have a law degree, which Mr Homer did not have. He was 62 years old and the retirement age for his job at that time was 65 (and at the time, Regulation 30 of the 2006 Regulations was still in force – i.e. the default retirement age – and so Mr Homer could not challenge the retirement age of 65). Obtaining a law degree on a part time basis would take at least four years and would therefore come too late for him. He brought a claim for indirect age discrimination under Regulation 3 of the 2006 Regulations.
It was held that a requirement which worked to the comparative disadvantage of a person approaching compulsory retirement was indirectly discriminatory on grounds of age. The requirement of a law degree amounted to such a requirement. The question was therefore whether that requirement could be justified. As the employment tribunal had not addressed this issue properly, the case was remitted back to the employment tribunal to determine this issue. Consequently, the case decided very little – even less than Mr Seldon’s case.
One thing is, however, certain: we have not heard the last of age discrimination. Whatever the ultimate outcome of Mr Seldon’s case, the fact is that the national social policy aims which can justify age discrimination are not fixed and may well change over the years in response to economic and social pressures – meaning that the reasons which employers have to rely on to justify compulsory retirement will have to change also. While the Supreme Court decision does give some helpful guidance for employers, forcing retirement on staff will continue to be a difficult process.
