Heyday's retirement age challenge - a good chance of success?

Consultant editor Darren Newman asks if those who have written off the Heyday challenge to the UK default retirement age, on the basis of the recent ECJ ruling in Félix Palacios, have overestimated the strength of the UK government's case.

In Félix Palacios de la Villa v Cortefiel Servicios SA Case C-411/05, the European Court of Justice (ECJ) held that Spanish law allowing employees to be retired at age 65 was not in breach of the provisions on age discrimination in the Equal Treatment Directive (2000/78/EC). Many commentators see this as an indication that a similar challenge brought by Heyday in the UK is likely to be unsuccessful when it is heard by the ECJ. I'm not so sure.

The first point of concern for the UK is that the ECJ held that dismissal at retirement age is covered by the Directive. Recital 14, which states that the Directive is without prejudice to national rules laying down retirement ages, was interpreted merely as allowing member states to determine their national retirement age. It does not allow for the termination of employment contracts when the retirement age has been reached.

The issue, therefore, is whether or not a provision in national law that allows dismissal on reaching retirement age is "justified by a legitimate aim, including legitimate employment policy … and if the means of achieving that aim are appropriate and necessary" in accordance with art. 6 of the Directive.

The ECJ held that the Spanish law meets this test and is therefore not in breach of the Directive. But just because the Spanish law is justified, it does not mean that the UK law is.

The ECJ stressed the importance of being able to identify the underlying aim of the law. In Spain the measure was introduced to check unemployment. The ECJ accepted that this was a legitimate aim, and went on to consider whether or not the means to adopt the aim were appropriate and necessary.

In holding that they were, the ECJ placed emphasis on two points. First, the Spanish law applies only where the worker in question would be entitled to an appropriate pension on retirement. Second, the retirement provisions apply only in the context of collective agreements to that effect reached between the social partners.

Against this background, the UK position starts to look rather precarious. The UK law on retirement allows for employees aged 65 to be dismissed without any consideration of the financial consequences for them, and without any need to agree with employee representatives that such an approach is needed in the industry in question.

Even more fundamental is the complete lack of principled reason for the provisions on retirement. In its Age Matters consultation in 2003, the government seemed to take the view that retirement would need to be justified by each employer that chose to operate a retirement age. However, in the Coming of Age consultation in 2005, the position had changed and the government announced that there would be provisions allowing employers to dismiss employees who had reached the age of 65, provided that a set procedure for notifying them of dismissal was followed and that they were given the opportunity to ask for a deferral of retirement.

The express reason for this change was that, although it was "best practice" to have no fixed retirement age, significant numbers of employers used a set retirement age as a "necessary part of their workforce planning". Consultations had also shown that some employers would cut work-related benefits to offset the additional costs if they were required to justify retirement dismissals.

It is difficult to see how a desire not to inconvenience employers by requiring them to abandon discriminatory practices could find favour with the ECJ as a legitimate aim of social policy. Even if it does, the blanket nature of the provisions could be held to be out of proportion to the policy objective being pursued. If the ECJ in Heyday rules consistently with the decision on the Spanish legislation - and consistency is not always the ECJ's strong suit - the outcome should be that the rules on retirement set out in the age discrimination legislation will have to be struck down.

perspective@irsonline.co.uk