People Newsletter (Spring/Summer 2012)
- Unfair dismissal qualifying period
- On your marks, get set, go! Get ready for the Olympics
- The price of injured feelings
- Franchising TUPE obligations?
- Seldon - the pensions issues
- Making employee ownership mainstream
The Supreme Court has recently handed down a decision in Seldon v Clarkson Wright and Jakes which provides useful guidance on the test for when direct discrimination on grounds of age is lawful. This "objective justification" defence must be based on considerations of wider public policy, although the employer's aim must also be legitimate given its own particular circumstances. The means of achieving the aim must also be proportionate for the defence to succeed.
Mr Seldon, a partner in a law firm, was compulsorily retired at the end of the year following his 65th birthday, in accordance with the partnership deed. He claimed that his compulsory retirement was direct age discrimination and unlawful.
The Supreme Court confirmed that the approach to justifying direct age discrimination is not the same as the approach to justifying indirect age discrimination. When seeking to justify direct age discrimination, the aims must be based on social policy objectives. These are of a public interest nature, distinguishable from purely individual reasons particular to the employer's situation, such as cost reduction or improving competitiveness.
In Seldon, the Employment Tribunal identified three legitimate aims relating to compulsory retirement: (1) ensuring associates were given the opportunity of partnership after a reasonable period; (2) facilitating partnership and workforce planning; and (3) limiting the need to expel underperforming partners, contributing to the congenial and supportive culture of the firm. The Court confirmed that these aims fell within the two kinds of social policy aim already identified by the European Court of Justice as legitimate: inter-generational fairness (such as sharing professional employment opportunities fairly between the generations) and dignity (such as limiting the need to dismiss underperforming older workers). All three aims were therefore legitimate.
Once an aim satisfying the social policy test has been identified, the Court stated that it still has to be asked whether it is legitimate in the particular circumstances of the employment concerned. The means chosen of achieving that aim also have to be proportionate (meaning appropriate and necessary). The means have to be carefully scrutinised in the context of the particular business concerned to see whether they meet the aim and that there are not other, less discriminatory, measures which would do so.
The Court also confirmed that where it is justified to have a general rule, the existence of that rule will usually justify the application of the rule to a particular individual. Significantly, the Court stated that all businesses will now have to give careful consideration to what, if any, mandatory retirement rules can be justified. The case has now been referred back to the tribunal to apply the principles identified by the Court to the particular facts of the case.
The Court's decision is helpful in clarifying what could constitute a legitimate aim for the purpose of practices which are directly discriminatory on the grounds of age.
What does this mean for pensions?
Most of the practices of occupational pension schemes which are potentially discriminatory on the grounds of age, and some of those in personal pension schemes, are expressly permitted by regulations under the Equality Act 2010. This is because it was recognised, when the legislation against age discrimination was originally introduced, that many of these practices, such as the minimum age at which benefits can be taken, are integral to how pension schemes operate and are required in order for the schemes to qualify for the valuable tax reliefs available for retirement saving. Another example is employer contribution rates to personal pension schemes which increase as a member gets older in order to compensate for the fact that they will be invested for a shorter period before the member retires than contributions paid at a younger age.
However, not all differences in treatment are covered by the exemptions and so they must be objectively justified if they are to be lawful. Such practices include terminating scheme membership or life cover at a particular age (direct discrimination) or, in a personal pension scheme, closing it to new employees and putting in place less favourable arrangements for them (indirect discrimination as, over time, the employees on the new terms will tend to be younger than those continuing on the old terms). These practices are lawful only if objectively justified.
For further information or tailored advice on the impact of Seldon on pensions, please contact one of our pensions partners, Michael Calvert or David Gallagher in the Employment and Pensions Group at Field Fisher Waterhouse LLP.