Jessica Fino 12 Oct 2018 09:40am

Can accountancy firms set a retirement age?

Partner at employment law firm Springhouse Solicitors, Katy Meves, explains the process of retirement and its implications for employers and employees

Retirement of senior management in commercial organisations is often not handled well. Not only can it be a difficult time for the individual involved, it can also open up the employer to significant legal risk.

The legal position

So what does the law say about retirement? It’s an area which has been subject to change and there is still confusion over the rights and wrongs. The default retirement age (DRA), which allowed employers to fairly dismiss 65-year-old employees on the grounds of retirement, was abolished in 2011. The DRA never applied to genuine partners so the position is now the same for all, whether they are employed under a contract of employment or not.

Following the abolition of the DRA, the majority of employers abandoned compulsory retirement ages as they were often considered to be direct age discrimination. However, unlike the other equality strands such as sex or disability, direct age discrimination can be lawful if the employer can show that the retirement age is a proportionate means of achieving a legitimate aim (sometimes referred to as objective justification).

Can accountancy firms make partners and other employees retire?

Justifying age discrimination involves identifying a legitimate aim that pursues a social policy objective such as intergenerational fairness, rather than a purely individual one such as cost cutting. Once a legitimate aim has been identified then the employer must show that the means of achieving it are proportionate. Essentially this means demonstrating that there is no less discriminatory way of achieving the aim, that the retirement is appropriate and necessary in the circumstances.

The Supreme Court looked at the justification of direct age discrimination in 2012 (Seldon v Clarkson Wright and Jakes). The case focussed on the forced retirement of a partner in a law firm at the age of 65. The court considered that the firm’s stated aims of staff retention, workforce planning and dignity were legitimate social policy objectives and, on remission to an employment tribunal, the retirement age was held to be proportionate and therefore not discriminatory.

Considering this, it seems likely that an accountancy firm that had carefully considered the need for a fixed retirement age for partners and could produce evidence to support its proposition, would be in a good position to defend a fixed retirement age. However, the outcome of any challenge by an individual would be entirely dependent on the facts. It is unlikely that a blanket retirement age across a whole organisation for every type of role would be justifiable.

It appears that a relatively small number of employers have maintained compulsory retirement ages – which are becoming very much the exception rather than the rule for employees (although more common for partners). Examples include specific roles in the emergency services, which require a significant level of fitness, or where exceptional mental speed and agility is needed, such as air traffic control. Interestingly, even this narrow group is now starting to face pressure to change. It was reported early this year that a former TUI airline pilot, Wayne Bailey, had lodged judicial review proceedings against the UK CAA challenging rules that prevent those aged over 65 working as commercial pilots.

The risk for employers is that they need convincing evidence to support their assertion that a compulsory retirement age is objectively justified. Often, this is not forthcoming and the case is built on mere assertions and stereotypical views which are not supported by data. This does not wash with an employment tribunal.

The practical consequences

The practical impact of this is that retirement is now very much individual-led so that the age at which people decide to go is personal to them. This presents employers with something of a dilemma, they need to incentivise younger workers to stick around and eventually fill senior roles but, faced with a perceived older generation of “bed blockers”, how can that be achieved? While someone who makes partner in their thirties may be willing to sign a partnership deed which imposes retirement at 55, when it comes to it will they want to go? As people live longer, start families, or have second families later in life, the on-going need for the “bank of Mum and Dad” to provide financial support to their children are good economic reasons why people may find they can’t afford to give up working.

For some employers this is problematic, no one wants to see a career end in a legal wrangle over retirement but the issue of intergenerational fairness is one which appears to be manifesting itself across society. It is a conundrum which the Courts and tribunals are likely to be called upon to adjudicate more and more.

The issue of intergenerational fairness has already manifested itself in law firms (and the issues are likely to be similar in accountancy firms), in the 2006 case of Bloxham v Freshfields. An employment tribunal rejected a claim of direct age discrimination by a former partner related to changes to the firm’s pension scheme, the aim of which was to be fairer to younger partners and make the scheme more financially sustainable. It accepted the firm’s argument the changes were justified and therefore not discriminatory.

In the case of employees (but not partners), it is also worth remembering that retirement is no longer a fair reason for dismissal so a forced retirement could also be an unfair dismissal.

Efficient planning for the departure and recruitment of staff has been held to be a legitimate aim but, the key for employers will be how this is handled at an individual level. ACAS recommends workplace discussions as a safe way for employers to raise the issue of retirement with workers so they can start to talk about their future plans. Starting the conversation earlier and keeping the channels of communication open can help, as can making flexible working options available to enable staff to “glide” into retirement rather than experience the cliff edge of a fixed retirement date.

What’s the alternative?

Many employers regard retirement as a dignified way to enable an exit and have traditionally avoided performance managing those close to retirement, accepting that there may be an inevitable drop off in performance as people move closer to the end of their working life.

While general assumptions about capability and performance after a certain age should be avoided, failure to address poor performance of an older employee (even if the motive is benign) could be age discriminatory – particularly where younger employees are performance managed as equality laws protect younger as well as older staff.

Whether someone is approaching retirement or not, an employer should still be offering assistance and training to enable them to improve, just as it would for a younger person who was being performance managed. Where performance cannot be improved, employers will have the option of dismissing employees on the grounds of capability.

Sickness levels may very well increase after a certain age and older workers should be treated exactly the same as younger workers in respect of any capability management processes. However, employers need to be vigilant as older individuals suffering from medical conditions may very well be considered “disabled” and therefore enjoy additional protections under discrimination law. Employers have a duty to make reasonable adjustments for those who are disabled to enable them to continue in the workforce, failure to do so is disability discrimination.

Katy Meves is a partner at boutique employment law firm Springhouse Solicitors