Wright, Johnston & Mackenzie Solicitors

Phasing out the retirement age

The Budget disclosed that the coalition Government will “quickly” phase out the Default Retirement Age (DRA) from April 2011.

The consultation paper ‘Phasing out the Default Retirement Age’ was released in July 2010 and responses are to be submitted by 21st October 2010.  The Government intends to publish a response to the contributions in November 2010.

Between 6 April 2011 and 1 October 2011, retirements which are already actioned can continue through to completion, provided that:

• a notification of retirement is issued by the employer prior to 6 April 2011;
• the date of retirement falls before 1 October 2011; and
• all requirements of the default retirement age procedure are met.

Under the proposed system, if an employer wants to dismiss an older employee, they would require to follow a fair procedure and rely on one of the reasons set out in s.98 of the Employment Rights Act 1996 (such as capability or conduct).

The current position is that employers can objectively justify a compulsory contractual retirement age.  Practically speaking, this will not change because the Employment Equality (Age) Regulations 2006 permit discrimination on the ground of age to the extent that it can be objectively justified.

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Retirement in Partnerships - a test case sets parameters

In Seldon v Clarkson Wright and Jakes (CWJ) and another, the employers were a law firm operating a retirement age of 65 for partners.  S, an equity partner, was scheduled to retire at the end of 2006 and in mid 2005 he opened discussions with the Managing Partner, W, with a view to securing a post-retirement role.

In April 2006, S’s proposal to continue working was rejected at a partners’ meeting on the basis that there was no business case for it.  After S retired (as scheduled) he lodged a claim of direct age discrimination.

The law firm put forward several reasons justifying the retirement policy of which the Employment Tribunal (ET) accepted three.  The first two related to recruiting and retaining able solicitors while the third concerned maintaining a congenial and supportive culture. 

The Tribunal accepted CWJ’s explanation that the compulsory retirement allowed partners nearing retirement to ‘coast’ and the alternative would be to undergo a performance management procedure.  Furthermore, the Tribunal held that compulsory retirement was a proportionate means of achieving the firm’s legitimate aims and was justified.

The Employment Appeal Tribunal (EAT) agreed, more or less, with the tribunal’s approach but upheld one ground of appeal. It decided that although the firm’s aim of limiting the need to expel partners through performance was potentially legitimate, it did not justify a retirement age of 65 in the absence of evidence that performance tended to decline at that age.

The question was remitted to the same tribunal to consider and, following the same judgement, S appealed once more to the Court of Appeal.

The Court of Appeal upheld the employer-justified retirement age and held that the default retirement age supported the choice of 65 as ‘fair and proportionate’.  In its decision, the Court of Appeal explained that the selection of any retirement age is going to be more discriminatory to people of that age than others.  Also, picking the age of 65 was supported by Regulation 30 of the Employment Equality (Age) Regulations 2006, which rendered retirement at 65 lawful.

Given the proposals to abolish the default retirement age, employers will not be able to rely on a compulsory retirement age of 65 as a natural point at which to retire staff.

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Cap on contractual redundancy pay was justified

Under the Employment Equality (Age) Regulations 2006, it is unlawful for an employee to discriminate against a person on the ground of that person’s age.  Redundancy schemes based on the statutory redundancy pay scheme are specifically exempt from the general prohibition, but employers using any other scheme applying age-related criteria must prove that the scheme is objectively justified.

In Kraft Foods UK Ltd v Hastie, the Employment Appeal Tribunal held that the redundancy scheme capping payments at the amount the employee would have earned had he continued in employment until normal retirement age, did not directly discriminate against a 63-year-old redundant employee on the grounds of age.

In this case, H had been employed by KF Ltd for approximately 40 years and took voluntary redundancy in 2008.  Under the company redundancy scheme, employees were entitled to three and a half weeks pay for each year of service.  In H’s case, that would be £90,100. However the maximum payable under the scheme should not exceed the amount the employee would have earned had they remained in employment until the normal retirement age of 65, which for H aged 63, would mean that is was capped at £76,560. 

The ET looked at whether the cap constituted a practice that put persons nearing retirement at a disadvantage compared with those that were not, and whether KF Ltd could justify the application of the cap as proportionate.  The Tribunal was satisfied that the cap constituted a practice that placed H at a disadvantage and KF Ltd has indirectly discriminated against H on the grounds of age.

The EAT reversed the ET’s decision and held that the nature of a cap on the redundancy scheme was a legitimate aim in order to prevent excess compensation being paid to employees nearing retirement.  In the absence of a cap, employees would likely receive a greater amount should they volunteer for redundancy than the amount that they would have received had they remained working until retirement.

[Note: the Age Regulations are due to be repealed, and its provisions incorporated into the Equality Act 2010 from October this year.]

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Bar on Overseas Employee’s Discrimination Claims

In the case of Neary v Service Children’s Education and others, a British citizen, N, had been employed abroad since 1991 but made occasional return trips.  N owned a house in the UK which he rented out and then, in 2007, he moved to Germany to teach.  In 2008 N applied for a job in Cyprus but was informed his application was unsuccessful.  N suggested that he was entitled to an interview as he was disabled but the school replied that he had not achieved the minimum criteria for the post and was not guaranteed an interview.

N raised claims for disability discrimination and age discrimination at London Central Employment Tribunal in respect of his rejected application and gave a contact address in Germany.

The question then arose whether the Tribunal had jurisdiction to hear N’s claims.

Under the Disability Discrimination Act 1995, an employee must be employed at an establishment in Great Britain in order to bring a claim.  However an employee who works ‘wholly outside Great Britain’ (GB) will be deemed to work at an establishment in GB if:

• the employer has a place of business in GB;
• the work is for the purposes of that business; and
• the employee is ‘ordinarily resident’ in GB when applying for or being offered the job, or any time during the course of the employment.

While there was no dispute that SCE satisfied the first two categories, the Tribunal held that N was not ‘ordinarily resident’ in GB when he applied for the job but resident in Germany. 

On appeal, the EAT relied on explanatory notes accompanying the Employment Equality (Sexual Orientation) Regulations 2003, which contain parallel jurisdictional provisions.  From these notes, an employee is ordinarily resident in GB if he is living and based there year after year and the fact that a person goes abroad for long periods of time may not detract from their being ordinarily resident in GB.

The EAT examined the interpretation of the phrase in case law in the context of income tax legislation.  Subsequently, the EAT upheld the decision of the employment judge that N was ordinarily resident in Germany and dismissed N’s appeal.

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Employment Tribunal Annual Statistics

The ET and EAT Statistics for 2009-10 have been published and reveal that accepted claims are at their highest levels (with an overall increase of 56% from 2008-9).  This is mainly due to a rise in the number of multiple claims, but also partly due to the changing economic climate.

The particular impact of the economic recession appears to have been in the areas of unfair dismissal, breach of contract and redundancy claims, where jurisdictional claims in these areas had increased by 17% from 2008-9 and 62% from 2007-8.

Of the 392,800 jurisdictional claims received in the year, just under a quarter related to the Working Time Directive (largely multiple airline industry cases that are resubmitted every three months) and 75,500 were unauthorised deductions (Wages Act).

The statistics show that there is no real difference in the number of appeals dealt with by the EAT in the last year by comparison with 2008-9.

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Claimants should not use the same facts to support two claims

This case, JP Morgan v Chweidan, is the authority for the proposition that where a claim for disability-related discrimination fails, the same facts probably should not support a finding of direct discrimination.

The Claimant, a banker, severely injured his back after a skiing accident and was initially confined to bed but later used a back brace and crutches.  He was unable to work as long hours as before, which led to a reduction in his bonus and dismissal.

The ET held that this was not disability-related discrimination, as the Claimant was treated like a comparator in the same predicament but without his disability.  Nevertheless, the ET found direct discrimination under S3A (5) DDA against the Claimant.

The EAT overturned this decision, holding that it was difficult to see how a claim of direct discrimination would succeed where a claim of disability-related discrimination under s.3A (1) Disability Discrimination Act 1995 had failed.  The EAT remitted the issue of whether the Claimant suffered direct discrimination for the tribunal to consider whether there were additional grounds to support such a finding.

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Adjustments for the mentally impaired

Statistics estimate that one in four people will experience mental health problems in their lifetime.  However, prior to 5 December 2005, many people suffering from a mental illness failed to satisfy the definition of ‘impairment’ under the Disability Discrimination Act 1995 which only allowed impairments consisting of a medically recognised mental illness.  This left some sufferers vulnerable to discrimination based on their illness. 

The Disability Discrimination Act 2005 (DDA) removed the restriction on the meaning of ‘impairment’.  Nevertheless, debate continues with academics whether the new Act provides adequate protection for people with ‘invisible’ conditions that cannot be easily proved e.g. anxiety or depression.

The EAT decision in J v DLA Piper UK LLP warned against a formulaic approach to the issue of proving an impairment.  The EAT overturned the tribunal decision to refuse a claim under the DDA raised by a woman suffering from depression because she did not have a sufficiently defined impairment.

Under the new DDA, employers are under a duty to make reasonable adjustments in the work policies, or to the premises if these features place a disable person at a substantial disadvantage.  Failing to comply amounts to discrimination against the disabled employee. 

The Act does not impose a general duty on employers to ensure that none of their practices or premises are ever likely to place a disabled person at a disadvantage - the duty arises on a case by case basis. 

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Burden of Proof reversed

This case, CIBC v Beck is authority for the proposition that a briefing document, referring to a “younger” replacement for a person who had been dismissed, is capable of reversing the burden of proof that the employee was dismissed on the grounds of his age. 

Normally, the burden of proof rests with the claimant.  However, in light of the briefing document, the burden of proof passed to the respondents.  In this case, the word “younger” had been retained in the face of advice from HR that it was inappropriate.

The fact that the Tribunal made findings consistent with a non-discriminatory explanation and initially considered that age discrimination was inherently unlikely did not prevent the burden of proof from reversing.

The Tribunal was not obliged to find that the burden of proof had been discharged by the selection of a shortlist in which many of the candidates were older than the Claimant, in circumstances in which the shortlist was produced by a different manager from the person who made the decision to dismiss.

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