The default retirement age (DRA) of 65 will be abolished from 1 October 2011. Retirement will no longer be a fair reason for dismissing an employee.

The European Court of Justice has handed down a decision in a recent employment case from Germany which will allow National Courts in individual Member States to determine whether an age structure within an organisation is lawful, despite the recent changes to the law.

Costs savings – is this a good enough reason?

The Court held that in order to achieve a suitable and necessary aim, costs can be considered alongside political, social and demographic factors, although costs cannot be the sole reason for introducing age restrictions. Organisations must not go beyond what is necessary to achieve a legitimate aim.

Legitimate aims may include:

• Maintaining a balanced workforce – balance between generations
• Efficient planning of staff departures to avoid performance disputes with older workers
• Encouraging the promotion of young people and increasing recruitment

A blanket approach to recruitment and retirement because of age and without justification is likely to be unlawful. Although the removal of the DRA will affect all organisations, regardless of their size, some businesses may have to work harder to justify an age restriction amongst its workforce.

There will be risks with such policies and employers must objectively justify the benefits of introducing a controlled departure ethos or policy both in relation to the organisation and its employees. Options, alternatives and a flexible approach to either allow for appeal or negotiation of any such restriction will be necessary to ensure that the system remains fair, under constant review and reasonable in the eyes of
the law.

Options for the employee…

Retirement at 65 can still be agreed if formal notice to resign is given by the employee and accepted by the employer. Further, careful discussion will be required if either party is not in agreement.

Options for the employer…

Fair dismissal on the ground of capability, for example, remains an option for employers. An ‘objectively justified’ workforce structure or policy within an organisation provides an alternative to fair dismissal and Compromise Agreements, both of which can be costly in both time and money.