The Supreme Court held that a firm of solicitors could justify forcing one of its partners, Mr Seldon, to retire for the public interest aims of "inter-generational fairness" and "dignity". However, an employment tribunal must now consider whether the age of 65, as specified in the firm's deed of partnership, was a "proportionate means" of achieving those aims.
Seldon had claimed that his forced retirement in 2006 was an act of direct discrimination under the Age Equality Regulations, which were replaced in 2010 by the Equality Act. Direct discrimination occurs when a person is treated less favourably than another would have been in comparable circumstances; however the Employment Equality (Age) Regulations create an exception where the treatment is "objectively and reasonably justified by a legitimate aim" and the means of achieving that aim are "appropriate and necessary".
The firm said that its retirement policy allowed the advancement of its more junior staff, which would be able to expect "an opportunity of partnership within a reasonable time" and so be incentivised to remain with the firm, and enabled long-term workforce planning. In addition, the firm's mandatory retirement age "limited the need to expel underperforming partners", fostering a "congenial and supportive culture" within the business.
Public interest aims are defined under European law, and are distinguishable from purely individual aims particular to the business such as reducing costs or improving competitiveness, the court said. However, those aims must also be considered legitimate in the particular circumstances of the case.
"Improving the recruitment of young people, in order to achieve a balanced and diverse workforce, is in principle a legitimate aim," Lady Hale said in her leading judgment (29-page / 100KB PDF). "But if there is in fact no problem in recruiting the young and the problem is in retaining the older and more experienced workers then it may not be a legitimate aim for the business concerned."
She stressed that the employment tribunal must consider the circumstances "as they were in 2006, when there was a designated retirement age for employees", when considering whether that particular age was justified in this case. The default retirement age was abolished in October last year.
Employment law expert Christopher Mordue of Pinsent Masons, the law firm behind Out-Law.com, questioned whether the case provides greater clarity on precisely when it would be lawful to force employees to retire at a certain age would be lawful. Although the Supreme Court had held that the partnership did have three potentially valid aims for implementing a compulsory retirement age, the crucial question was whether it had acted proportionately in choosing a retirement age of 65 as its means of achieving those aims.
"This case is far from over," he said. "An employment tribunal must still assess whether it was proportionate to force Mr Seldon to retire at the age of 65 – as opposed to, say, 67 or 70. This really confirms the principles from existing ECJ decisions - that while it is relatively easy for employers to show a potential legitimate aim capable of justifying mandatory retirement, the critical and most difficult challenge for employers is to prove - with evidence - the relevance of that aim to their particular business and that the retirement age they have chosen is a proportionate way to meet that aim."
This is a difficult test, so it would be wrong to interpret the judgment as making it easier for employers to use compulsory retirement, he explained. For example, where an employer had argued that it had a business need to create turnover among senior staff in order to recruit and retain younger workers, that employer would have to show not only that it did in fact have problems in recruiting and retaining younger workers but that also that the retirement age it had chosen was an appropriate solution to that problem.
"Most employers will probably stick with their approach of abandoning compulsory retirement ages at least until operating without these creates real issues which might form the basis for a well-considered objective justification defence," he said.
Charity Age UK, which backed Seldon's case, said that the ruling "established new ground rules" on how employers could behave towards their older employees.
"This is a wake up call to employers that age discrimination in the workplace is no longer legally acceptable and that negative ageist stereotypes are out of date," said Michelle Mitchell, the charity's director general. "We are delighted that the Supreme Court has recognised the important contribution of older workers and has sent this message to the UK government and business."