26/10/2010
The default retirement age is being put out to pasture next October and, once it goes, employers will have to objectively justify compulsory retirement ages. A recent decision of the European Court of Justice has provided some help with the question of how courts and tribunals might approach the thorny issue of what ‘justification’ may mean. Sarah Lamont reports.
In this article...
The background
The government has announced that it intends to phase out the ‘default retirement age’ of 65, and associated retirement procedures, by October 2011. If the proposals go ahead (which seems likely), the last notices of retirement, under the current rules, must be issued by next April. For more information, please see our August 2010 article, ‘Default retirement age has one foot in the grave’ and consultation document issued by the government. Since our article was published, consultation on the abolition of the default retirement age has now closed, and we await further updates from the department for Business, Innovation and Skills.
Assuming the default retirement age will be removed, employers will be required to justify retirement ages; either as part of an ‘Employer Justified Retirement Age’ or as a defence to a claim of age discrimination.
The justification of age discrimination in Germany was examined by the European Court of Justice (ECJ) in Rosenbladt v Oellerking Gebaudereinigungsgesellschaft. Under Germany’s General Law on Equal Treatment, discrimination on grounds of age is permitted if it is objective, reasonable and justified (similar to our rules). Examples of permissible treatment include an agreement that provides for the termination of an employee's employment without notice when they become eligible for an old-age pension, as long as the agreement in question was concluded within three years of the standard retirement age. These conditions are included in a collective agreement for employees in the cleaning sector, which applies a standard retirement age of 65. The terms of the collective agreement were declared by the German government to have general application.
The facts
Mrs Rosenbladt was employed by a cleaning firm, Oellerking, and she was informed that her employment would terminate due to her reaching retirement age. Mrs Rosenbladt’s request to continue working beyond her retirement age was rejected by Oellerking, and she issued proceedings in Germany arguing that the termination of her employment was unlawful discrimination on grounds of age. Her argument was that the age limit in the German collective agreement could not be justified under the Equal Treatment Directive.
The German Labour Court asked the ECJ to rule on whether the automatic termination of an employment relationship at a specific age (in this case, 65) contravened the prohibition on age discrimination under the Equal Treatment Directive.
The decision
The ECJ held that a compulsory retirement age of 65 is discriminatory. However, it may be justified in circumstances where:
- the retirement age is set out in a contract which has been collectively agreed
- any potential financial hardship is ameliorated by the fact that retirement could not be imposed unless the employee had pension provision in place
- the employee in question would continue to be protected from age discrimination, after her employment had terminated and would, therefore, not be prevented from working again if she so wished.
Looking at the German provisions overall, the ECJ was satisfied that these arrangements allowed for stability of employment and the promise of a foreseeable retirement; while offering employers a level of flexibility in the management of their staff. This, the ECJ held, resulted in a satisfactory balance between diverging interests, in the context of complex employment and political relationships, and this was a practice that was widespread amongst member states.
The ECJ also took into account the fact that having a set retirement age allows employees to retire with dignity, rather than being dismissed for lack of capability. The Court also noted that compulsory retirement had been widespread in Germany without having any effect on levels of employment, and is also common practice across member states.
What does this mean for me?
This decision bodes well for employers who may be wondering how to manage the retirement of employees once the default retirement age is repealed next year: if the employee in question has other financial provision in place, the retirement age has been agreed and the employee would not be precluded from the labour market after retirement, then these are factors likely to work in an employer’s favour.
That said, it is does not represent carte blanche to retire employees at a fixed age: the decision related to the application of retirement provisions with statutory effect, so the Court was able to take into account wide considerations, such as the general economic and social context in which legislation operates. These are not considerations that would necessarily be open to an employer, in seeking to justify a set contractual retirement age within an organisation. However, this decision does show that the ECJ is willing to take a pragmatic and holistic approach to set retirement ages, weighing up the potential hardship that may be caused to the individual concerned against the benefits to the individual and to society generally.
