On 5 March 2009 the European Court of Justice (ECJ) ruled (in Heyday ) that the UK legislation that permits forced retirement at age 65 is unlawful, unless the UK government is able to justify having such a policy. This will be decided by the High Court, probably later this year.
Much more controversial was the ECJ’s ruling on the circumstances in which direct discrimination can be justified. The judgment on this point could curtail, or even remove completely, the ability for employers and pension-scheme trustees to justify age-based rules. Again, it will be for the High Court to decide how this part of the ECJ’s ruling affects the UK legislation.
Background
Shortly before the Employment Equality (Age) Regulations 2006 (the ‘Age Regulations’) took effect (in respect of pensions) on 1 December 2006, Heyday applied to the High Court to challenge them on the basis that:
- regulation 30, which permits employers to continue to force employees to retire at age 65, is contrary to the EC Equal Treatment Framework Directive (2000/78/EC) (the ‘Directive’); and
- the ability to ‘justify’ direct age discrimination has been drafted too widely.
The High Court referred various questions to the ECJ for guidance. For more background on the Age Regulations and Heyday , please see our article in IHL165, p96.
Compulsory retirement at age 65
As expected, the ECJ confirmed that the Directive does apply to national laws that permit compulsory retirement. This means that the UK’s default retirement age will be unlawful, unless the High Court decides that it is ‘justified’ on social policy grounds. In connection with this, the ECJ held that the Directive imposes on member states the burden of establishing to a ‘high standard of proof’ the legitimacy of the aim relied on as a justification. It is far from certain that the UK government will be able to achieve this.
Justifying direct discrimination
The Age Regulations state that direct age discrimination is permitted if it is a ‘proportionate means of achieving a legitimate aim’. Heyday argued that this gives employers too much flexibility – on the basis that it is drafted more widely than the test contained in the Directive – and that the law should identify the specific circumstances in which direct discrimination is justified.
The ECJ disagreed with Heyday on this latter point. It ruled that there is no need for types of permissible age discrimination to be specifically listed in the legislation.
However, the ECJ went on to say that direct discrimination can only be justified by reference to national social policy objectives, such as those related to employment policy, the labour market or vocational training. Significantly, the ECJ noted that:
‘By their public interest nature, those legitimate aims are distinguishable from purely individual reasons particular to the employer’s situation, such as cost reduction or improving competitiveness.’
Therefore, it would seem that direct age discrimination cannot be justified by aims that relate to a particular employer and must relate to broader national social policy issues. What is more, the ECJ indicated that it is for member states, not employers, to justify direct discrimination.
This aspect of the ECJ’s decision appears to significantly reduce the scope for employers to justify policies or practices that discriminate directly on grounds of age (such as age-related benefit or redundancy payments, or operating minimum/maximum recruitment ages). This may also make it more difficult for pension-scheme trustees to justify any direct discrimination under their scheme, which is not specifically permitted by the Age Regulations. However, it is for the High Court to decide how this part of the ECJ’s ruling applies in the context of the Age Regulations.
What happens next?
As noted above, it is now for the High Court to determine:
- whether the UK’s default retirement age is justified; and
- whether regulation 3(1) of the Age Regulations, on justifying direct discrimination, is compatible with EU law.
Although no date has yet been set for the hearing, it is expected to take place in the second half of this year.
Immediate implications for employers and trustees
If an employer continues to force employees to retire at age 65, to protect its position, it may wish to consider how it would justify this. However, the ECJ’s ruling on justifying direct discrimination means that individual employers might not find it easy to do so. Employers (and pension-scheme trustees) may also wish to review any other directly discriminatory practices and consider whether they can be justified on social policy grounds. If not, careful consideration may need to be given as to whether or not to continue such practices.
By Aida Mebrahtu, senior associate, Eversheds LLP.
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