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Employment Law

The Age Old Question of Retirement Ages

February 2016

 

In a hugely significant development from an employment law perspective, a new piece of legislation, the Equality (Miscellaneous Provisions) Act, 2015 has been commenced, with effect as and from 1st January last. This legislation makes a number of amendments to our existing employment equality legislation and, most significantly from an employer’s perspective, clarifies that employers may continue to set compulsory retirement ages provided they can show that it is objectively and reasonably justified by a legitimate aim and the means of achieving that aim are proportionate and necessary.

In other words, it has now been confirmed from an Irish legal perspective that employers must be in a position to objectively justify the setting of a compulsory retirement age in employment.  

Background

It remains the position that, from an Irish legal perspective, there is no mandatory retirement age from employment. This essentially means that an employee has a legal right to work regardless of their age. However, the Equality legislation provides Irish employers with discretion on fixing compulsory retirement ages. Therefore, on the face of it, if there was a clear retirement age provided for by the employer, this can be relied upon as a defence to any discrimination claim.

There is of course a State pension age, which is a separate issue, and is the age at which employees are entitled to drawn down the State pension. Some employers have increased their mandatory retirement age in their organisation in order to mirror the State pension age, which is currently 66, but that is entirely a discretionary matter for the employer and not a legal obligation under any circumstances. Many other employers have left their mandatory retirement age at 65, notwithstanding that the State pension age has risen to 66, and is due to rise further over the coming years.

If an employee works beyond the normal mandatory retirement age in an organisation, or if there is no express contractual mandatory retirement age, there is a strong argument that any attempt to arbitrarily retire an employee would be discriminatory on grounds of age. Any age discrimination claim brought by an employee in that situation could be costly in circumstances where the equality legislation provides for remuneration up to a maximum of two years’ gross salary.

Impact of European legal position

The issue of whether the imposition by an employer of a blanket retirement age in their organisation is permitted under EU law has been the subject of a number of cases over the past number of years. In a nutshell, at European level, the caselaw has established that an employer must be able to objectively justify the imposition of a compulsory retirement age.  

On the face of it, Section 34 (4) of the Employment Equality Act, 1998, appeared to allow mandatory retirement of employees who reached the established retirement age within the employment to be lawful and not to constitute age discrimination. To the extent that Section 34 (4) essentially permitted the dismissal of employees on reaching compulsory retirement age, a serious question arose over this blanket fixing of mandatory retirement ages by individual employers as being in conformity with the European Framework Directive from which the legislation derived. It is well established within jurisprudence of the Court of Justice of the European Union that fixed retirement ages must be capable of objective justification having regard to public policy considerations.  

Notwithstanding that the Employment Equality legislation did not contain a requirement to objectively justify mandatory retirement ages, the Equality Tribunal interpreted Section 34 (4) harmoniously with the Framework Directive over the last number of years so as to require any fixing of retirement ages to be objectively justified. However, given that there was no requirement for mandatory retirement ages to be subject to objective justification within the Employment Equality Acts, this raised the question as to whether or not Equality Officers were entitled to seek objective justification from employers who were challenged on their compulsory retirement ages.

The legal position now

As a result of the commencement of the Equality (Miscellaneous Provisions) Act, 2015, this question has now been resolved and it is now categorically the Irish legal position that mandatory retirement ages set by employers must be capable of objective justification. Therefore, in setting a mandatory retirement age, or in reviewing an existing mandatory retirement age, consideration must be given to whether or not the retirement age is objectively justified. This is particularly the case given that the emerging trend is that less employees want to retire at 60 or 65 than was previously the case given that employees are generally fitter and healthier than might historically have been the case.

What is objective justification?

There have been a number of European and Irish cases which have established that there is a three stage test for justifying direct age discrimination by way of compulsory retirement:

1.    Do the measures seek to achieve a legitimate aim?

Intergenerational fairness (e.g. the interchange of ideas between younger and older workers) and dignity (e.g. avoiding the need for costly and diverse disputes about capacity or underperformance) are legitimate aims but reasons particular to the employer such as cost reduction and approving competitiveness or not.  

2.    Is the aim legitimate in the particular circumstances of the business?

For example, whilst a policy of increasing the recruitment of young people in order to achieve a balanced and diverse workforce is in principle a legitimate aim, if the business in questions is easily able to recruit young people but has a problem with retaining older workers, it is unlikely to be a legitimate aim for that particular business. The Courts have made it clear that it is the particular circumstances of the business rather than the individual that should be considered.

3.    Are the means of achieving the aim proportionate?

In other words, are the means both appropriate to the aim and necessary to achieve it, or are other, less discriminatory measures possible. For example, is a mandatory retirement age of 65 a proportionate means of achieving a balanced and diverse workforce?

These are the questions that Irish employers must now ask themselves if they are to stand over a compulsory retirement age in their employment. It is time for all employers to review their retirement ages to ensure that objective justification is available as a defence to any claim of age discrimination by way of enforcement of a compulsory retirement age. 

 

Jennifer Cashman
Partner & Head of Employment Law
Ronan Daly Jermyn

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