Jennifer Nicol, Partner, Doyle Clayton, the UK’s largest specialist employment law firm

retirement sign

Justifying compusary retirement age

What happened?

The default retirement age might well have been scrapped last year, but employers have now been given a precedent for defending ‘retiring’ staff at 65, if their reason is to allow younger employees the chance to move up through the ranks. The Supreme Court (Seldon v Clarkson Wright & Jakes) rejected solicitor Leslie Seldon’s appeal against being dismissed at 65 and instead accepted that the firm was able to do this to allow it to forward plan more easily, and that without it, more confrontational mechanisms like performance reviews would be needed.

It linked workforce planning to social policy aims of sharing work opportunities fairly between the generations (“inter-generational fairness”). The aim of maintaining a congenial workplace was also linked to the social policy aim of preserving dignity, by avoiding the need to performance-manage older workers.

Benefits impact

The employment tribunal considered whether the choice of age 65, rather than another age, was appropriate and necessary or whether the firm’s aims could have been achieved by less discriminatory means. The decision in this case applies to all employers seeking to justify any form of less favourable treatment on grounds of age, not just a compulsory retirement age.

Examples include an employer that ceases to provide a benefit once an employee reaches a particular age, or only starts providing a benefit at a particular age, or who discriminates against employees who are older/younger than that age. The employer must justify that decision by reference to a social policy aim, i.e. one of a public nature including employment policy, labour market and vocational training objectives.

That may be difficult in this context and if no social policy aim can be identified, there will be no defence to a direct age discrimination claim. Even if a social policy aim can be identified, the employer may still struggle to justify the particular age it has chosen to start or stop providing the benefit. It is worth remembering that there is an exception in the Equality Act 2010, which allows employers to cease providing group risk insured benefits to employees at the age of 65.

This applies to insured benefits such as life assurance, health insurance and income protection insurance.  However, it appears only to apply if the employer stops providing the benefit as soon as the employee reaches the age of 65.  Being more generous and stopping the benefit at an older age will not fall within the exception and so would need to be justified.

Guaranteed minimum bonus pools

What happened?

In May, Commezbank (which took over Dresdner Kleinwort in January 2009), was told it would have to award the €400m (£316m) in bonuses promised to more than 100 Kleinwort bankers by the then CEO, Stefan Jentzsch. He said a minimum bonus pool of €400m could be allocated on a discretionary basis according to individual performance.

Benefits impact

The court held that the verbal announcement was sufficiently clear and had been intended to create legally enforceable obligations. (The purpose was to ensure staff remained during a time of uncertainty for the business). The case demonstrates how employers need to be careful discussing bonuses and other benefits with staff.

Contractual commitments can arise, even where nothing is put in writing, if such discussions are couched in terms which are sufficiently certain, and where an intention to create legally enforceable obligations can be inferred. Employers should ensure they make any conditions for the payment of bonuses absolutely clear and that when drafting bonus documentation they anticipate and provide for any events that might result in a reduced bonus payment.