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ABG LAW Employment Newsletter - July 2010

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Employment E-Briefing

Monthly Update On Employment Law Developments To End July 2010

1. Compulsory Retirement Age

The Government’s plans to abolish the compulsory retirement age have already attracted a great deal of attention. The essential details are as follows:-

  • With effect from 1st October 2011 the default compulsory retirement age of 65 will be abolished, as will the statutory retirement procedures which were introduced by the 2006 Age Discrimination Regulations.
  • Transitional arrangements will apply from 6th April 2011 whereby employers will no longer be able to serve a statutory notification of intended retirement.
  • As from 1st October 2011 employers will be able to rely on and implement contractual retirement ages only if they can justify the compulsory retirement as a proportionate means of achieving a legitimate aim.

What does this mean in practice?

  • For any employee who is due to reach the age of 65 before 1st October 2011 it will still be possible for the employer to implement compulsory retirement, but the statutory notification of intended retirement must be given to the employee before 6th April 2011.
  • As from 1st October 2011 an employee’s right to request to stay in work beyond retirement age will be replaced by an actual right to stay in work beyond 65. Unfair dismissal protection and protection against age discrimination will apply in full to any employee who is aged 65 or over.
  • An employer who wishes to terminate the employment of an employee at the age of 65 or above will be able to do so only in two situations:-

    • (a) where termination is for a fair and justifiable reason in the normal way, e.g. poor performance, incapability, ill health, sickness absence, redundancy, etc - and a fair procedure is followed;

    (b) where retirement can be justified as a proportionate means of achieving a legitimate aim - but it is likely to be very difficult to show that this exception to the new “no compulsory retirement” law applies.


  • Following on from this last point, contractual retirement ages will only be enforceable if the defence of a proportionate means of achieving a legitimate aim applies. The Government have given two examples of jobs to which this might apply: air traffic controllers and police officers.
  • It will, of course, still be possible for employees to retire at 65 if they wish to do so, but it will be their choice.


Although this major change is over 12 months away, employers will be well advised to undertake a review now of their policies and practices as regards retirement; any employer who wishes to try to retain compulsory retirement will have to put together a very strong rationale for doing so based on the “proportionate means of achieving a legitimate aim” ground.

Consideration should also be given to any employee benefits which might be affected by the removal of the default retirement age, e.g. life insurance, medical expenses insurance, permanent health insurance/income protection cover.


2. Compulsory Retirement and Legitimate Aims

At the same time as the Government’s plans were being announced, the Court of Appeal gave its judgment in the case of Seldon -v- Clarkson Wright & Jakes. This is the case where a partner in a firm of solicitors was forced to retire at 65 due to a rule in the firm’s partnership deed requiring partners to retire at that age.

The Age Regulations do not contain any default retirement age for partners (as opposed to employees) and hence it was necessary for the Court to consider whether the firm’s default retirement age could be justified as a proportionate means of achieving a legitimate aim. The employment tribunal which heard the case had upheld the firm’s argument that its rule was justified in the interests of workforce planning and providing up and coming solicitors with promotion opportunities.

The Court of Appeal has upheld this ruling and in so doing was influenced by the current default retirement age of 65 for employees.

Although this case serves as a useful example of the kind of factors which employers might be able to rely on to justify compulsory retirement when the change in the law comes into force in October 2011, it should not be thought that workforce planning and/or the provision of promotion opportunities will be available as a carte blanch defence. It is likely to be much more difficult in the future to rely on generalisations of this nature because otherwise the very purpose of the new law would be easily undermined.


3. Age Discrimination and Redundancy Payments

Staying with the topic of legitimate aims, in the case of Kraft Foods UK Ltd -v- Hastie the EAT has held that a cap applying to payments under a contractual redundancy scheme to ensure that employees did not receive more than they could have earned had they remained employed until retirement age was a proportionate means of achieving a legitimate aim and therefore did not amount to unlawful age discrimination in breach of the Age Regulations.

Under Kraft’s voluntary redundancy scheme employees receive 3½ weeks actual pay for each year of service, but there is a cap which ensures that the redundancy payment does not exceed what an employee would have earned had they remained in employment until normal retirement age. In this case an employee who was 2 years from retirement had his VR payment reduced by £13,600 due to application of the cap and he then complained that this amounted to unlawful age discrimination.

However, his challenge to the scheme has been rejected by the EAT. The cap was a provision which was clearly directed at preventing a windfall, the object of the VR scheme being to compensate employees who took VR for the loss of earnings they would otherwise have received if employment had continued.


4. Retraction of Dismissal

It is established law that a party who gives notice to terminate employment (whether the employer or employee) has no general right to withdraw it. One of the exceptions to this is where an employee gives notice in the heat of the moment: case law has established that such a situation may constitute special circumstances and that resignation in the heat of the moment should not be taken at face value.

In the case of Willoughby -v- C F Capital plc the employment tribunal ruled that there were special circumstances which entitled the employer to retract a dismissal letter which, on its face, terminated the employee’s employment. However, this decision has been overturned by the EAT which has said that, whilst it may be possible in exceptional cases for an employer to retract a dismissal letter, this was not one of them.

In this case there were discussions between the employer and employee about the possibility of her switching from employment to self employment as a way of avoiding redundancy. The employers then wrote a letter to the employee indicating she had agreed to move to self employment and they terminated her employment with effect from 31st December. However, the employee had not in fact agreed to become self employed and subsequently brought claims for both unfair dismissal and wrongful dismissal. The employers tried to retrieve the situation by sending her a further letter saying there had been a misunderstanding and they attempted to retract the dismissal.

Although the employment tribunal rejected her claim, the EAT overturned the tribunal’s decision and held that she had been dismissed. The alleged misunderstanding on the part of the employer was not sufficient to provide exceptional circumstances to the general rule that an employer who uses unambiguous words of dismissal will be taken to have dismissed the employee and cannot subsequently retract the dismissal without the employee’s agreement.


5. Costs Orders - Winner Must Pay Costs

The usual rule in employment tribunal proceedings is that each party must pay their own costs, win or lose. However, a party may be ordered to pay costs if they have acted vexatiously or unreasonably in bringing the claim or it was misconceived. Whilst this rule is normally used to seek costs against a losing party, the case of Nicholson Highlandwear Ltd -v- Nicholson is an interesting example of a situation where the successful party was ordered to pay costs.

In this case the employee had been dismissed summarily after the employers discovered he had been defrauding them through false accounting, was running his own business out of their premises and was diverting customers to that business.

His claim for unfair dismissal was successful because the employer had not followed a fair procedure when dismissing him. Nevertheless the tribunal awarded him no compensation because his dismissal was 100% attributable to his own fraudulent conduct.

The employer applied for a costs order against the claimant based on his unreasonable behaviour in bringing the case. Although the tribunal refused this application on the grounds that he had shown that his dismissal was unfair, albeit only procedurally unfair, the EAT has overturned this decision as perverse.

The EAT pointed out that he had persisted in a claim in which he knew he had acted dishonestly. The fact that he had succeeded on procedural grounds did not mean it was reasonable for him to bring it. In these circumstances the EAT ordered the successful claimant to pay costs.


The comments in this note are of a general nature only. Full advice should be sought on any specific problems.
ASHTON BOND GIGG
July 2010