Employment solicitor David Regan explains the implications for employers of the abolition of the default retirement age which has just started to kick in this spring.
The question of how to deal with older members of staff, particularly those who have worked for a business for a long time, is a difficult one for managers. Up until 6 April this year, employers have had to follow a fairly strict retirement process that penalises them for failing to comply, but which does allow them to choose to retire an employee without the employee having any say in the matter. From 6 April this process began to fall away and from 1 October 2011, it will be age discrimination to dismiss someone by reason of retirement.
The abolition of the default retirement age has the potential to have a large impact on businesses, as staff may choose to remain in their position longer, hindering succession planning, and employers and managers will be forced in many cases to invoke disciplinary procedures to manage the performance of longstanding employees, with a subsequent negative effect on morale.
However, where there is clear ongoing dialogue between managers and staff, and all parties are open to sensible communication, there is no reason why employees continuing to work past the current default retirement age should prove to be a problem. But you need to know where you stand and be clear of the law in any case.
1. Know the rules
* Notices of intended retirement date cannot be issued (from 6 April 2011 onwards).
* The default retirement age was abolished with effect from 6 April 2011, although compulsory retirement will still be permitted in certain circumstances until 5 April 2012.
* Employees will be able to request to carry on working using the current statutory procedure until 4 January 2012.
* Any extensions as a result of such request must be less than six months and therefore must expire on 5 October 2012 at the latest (although there is some discussion about this date, see below).
2. Give due notice
Notices of intended retirement can now only be issued for employees who are 65 or over (or will attain the company’s default retirement age, if different from 65) on or before 30 September 2011 and the notice of intended retirement date for that employee must be issued no later than 5 April 2011.
The notice given can be up to 12 months, so can take effect up to 5 April 2012. Employees can then make a further request to carry on working provided that this is submitted no later than 4 January 2012. If a new retirement date is set as a result of this request, it must expire no later than six months following the previous intended retirement date if it is not to be discriminatory under section 13 of the Equality Act 2010 (although the defence of objective justification will still apply).
3. Speaking off the record
Whilst this alternative to the default retirement age is tempting, trying to speak with an employee ‘off the record’ is fraught with difficulty. In brief, simply saying “this conversation is ‘off the record’ or ‘without prejudice’,” does not mean that the employee cannot use the conversation against the employer. Therefore an employee could argue that these discussions are an attempt to force them out on the grounds of their age, and consequently sue for age discrimination.
4. Putting it on the record
The best time to speak to employees ‘on the record’ is during annual appraisals, or at regular meetings. Indeed, it may make sense for employers to discuss future plans with all employees at appraisal time, as this will give the employer a better idea of who is looking for advancement, who is happy within their role, who is considering retiring, and plan accordingly.
5. Keep a close eye on performance
Many employers are concerned that the change in law means that they will be stuck with staff members who cannot perform and who cannot be retired. This is not the case. Under the new law employers will have to keep a closer eye on who is performing well, and manage all employees’ performance equally, regardless of age or length of service.
6. Set a corporate ‘normal retiring age’
Contrary to popular belief, employers will still be able to set a ‘normal retiring age’ for employees. Although this will be age discrimination, this will be justifiable if the decision can be shown to be a proportionate means of achieving a legitimate aim.
7. Succession planning
The most obvious difficulty for employers will be that there is no longer a ready-made timetable for retirement, meaning the path to senior positions could be blocked. Employers may also feel unable to ask when an employee is intending to retire, leading to ‘shock’ retirements that leave the employer without a proven successor.
8. Handling difficult relations
Employers may also find it difficult to start discussions about retirement as detailed above. Even if they do, many employees may not take kindly to the idea that they should retire if they are not ready to do so. In addition, under the ‘old’ law, employees have often been allowed to continue to retirement with managers overlooking lapses in judgment or incremental changes in performance which can be attributed to an employee’s age. Moving forward, employers will be faced with the unpleasant task of performance managing longstanding, cherished employees if they are not up to task rather than allowing them to continue with the knowledge that retirement is just around the corner.
9. Understand the meaning of a ‘legitimate aim’
Cases under the ‘old law’ have found legitimate aims to be workforce planning, enabling recruitment and retention of younger employees, avoiding adverse impact on pensions and benefits, ensuring continued competence, and having an age balanced workforce ensuring job opportunities amongst the generations. However, employers will need to be careful when implementing a normal retirement age and will need to show that they have balanced the employee’s rights and dignity against the needs of the business.
10. Flexible working
In practice, some employers may be happy to allow an employee to continue working as long as they choose, and many employees will most likely want to at least reduce their hours, if not finish working completely, as they age. It is important to note that the abolition of the default retirement age has no effect upon the flexible working law which is currently in place, and employers will not be under a duty to allow older employees to work reduced hours unless they are eligible for flexible working in the usual way.
11. Performance management
In addition to the employee relations issues already highlighted, managers must ensure that performance management processes are implemented fairly across the entire range of employees in order to avoid any accusations of age bias, or trying to force out the older members of staff. In addition, managers will need to watch for age related disabilities and, if any disability is found, will need to consider whether or not any reasonable adjustments may need to be made in relation to the employee and their employment.
There are two exceptions to the abolition of the default retirement age:
* It does not affect occupational pension schemes and the setting of a ‘normal retirement age’ for the purposes of such schemes.
* Employers may withdraw benefits for employees at or over the age of 65 (with the age at which withdrawal will be legal rising in accordance with the state pension age). This exemption deals with a key concern of employers, namely that the rising costs of benefits and insurance for employees over the state pension age could make the provision of these benefits prohibitively expensive.
13. Ending the confusion
To clarify, the last date on which a notice of intended retirement date can be issued is 5 April 2011 (provided the employee has reached 65, or the relevant normal retirement age by that date). Any such notice can be for up to 12 months. An employee can then ask for an extension to that notice, which can be for up to 6 months (any longer extension would require a new notice of intended retirement to be issued, and one cannot be issued post 5 April 2011).
Some debate has arisen amongst employment lawyers as to the correct dates for these matters. On strict interpretation, if notice is given on 5 April 2011, it would start with effect from 6 April 2011 and would then expire on 5 April 2012. Any extension would be for 6 months from this point. The question that is open for interpretation is whether or not the extension is for an additional 6 months from this point, so ends on 4 October 2012, or whether the extension takes effect the day after the expiry of the original 12-month period, and then ends on 5 October 2012. There is also some debate about whether the original notice has to be given with effect from 5 April 2011, or has to start on 5 April 2011, in which case the question would be whether or not the last date for retirement could be 3 or 4 October.
The Department for Business, Innovation and Skills holds the view that 5 October 2012 is the last date upon which any notice (with an additional extension) could take effect, and this view, taking the strict legal interpretation into account, makes the most sense. However, it is worth noting that there are competing views out there. Hopefully definitive guidance will be published prior to the Regulations coming into force.