The Seldon time-travel machine: succession planning as a justification for age discrimination

The decision of the Employment Tribunal in Seldon v Clarkson Wright & Jakes (ET/1100275/07, 28 May 2013), following remission by the Supreme Court, has been to reject the age discrimination claim that was first rejected by the Tribunal in 2006.

In Einstein's "Twin Paradox" a traveller in space returns to Earth. He finds that although he has aged only two years on his journey, 200 years have passed on Earth. His world has changed beyond recognition. So too, when the Seldon case returned to the tribunal in 2013, it found a legal landscape much changed from that which it had left in 2006. During the time the case chartered its course through the higher courts, successive governments have had a shift in thinking about the nation's ageing workforce. Those changes mean the outcome of the case has to be seen in the context of a materially changed legislative and social framework.

Unlawful retirement claim

Mr Seldon, a partner in a firm of solicitors, was required by the firm's partnership agreement to retire at 65. He claimed this retirement rule was unlawful direct discrimination on grounds of age. Compulsory retirement was clearly less favourable treatment on grounds of age. Mr Seldon asked a deceptively simple question: was the retirement rule justified as a proportionate means of achieving legitimate aims? Finding the answer to that question involved a journey all the way to the Supreme Court (in 2012), and back to the tribunal. The tribunal's answer, in 2013 just as in 2006, was that the rule was justified. However, the tribunal was required to decide whether the application of the retirement rule was justified as at 2006. Much has changed since then.

Back in 2006, compulsory retirement ages in partnerships were directly discriminatory and had to be justified. However, in the employed workforce, employers could rely on an exemption in the Age Regulations which permitted employers to retire its employees at 65: the Default Retirement Age (DRA). In 2011 the DRA was abolished. Employers now have to justify the application of a compulsory retirement age and the test for partners and employees is now the same. The principles in relation to partnerships developed in Seldon now assume considerable significance across the employed workforce. Although the abolition of the DRA has seen a fairly substantial shift by employers away from compulsory retirement ages, it is estimated that 20 per cent of employers enforce a fixed retirement age.

The 2006 tribunal was decided against a backdrop of a state pension age of 65 (men) and 60 (women). Since then successive governments have sought both to equalise the pension age for men and women, and to raise it to 66 by 2020, and 67 by 2028. Back in 2006, if you were going to have a compulsory retirement age, it made sense for it to be 65. Now, even if you establish the need for a compulsory retirement age, it is just as important to consider what that retirement age should be.

Wider social aim

In 2012, the Supreme Court ruled that direct age discrimination, such as a compulsory retirement age, can only be justified if it seeks to achieve a legitimate aim of a public interest nature. Justification cannot be by reference to the firm's internal aims, such as cost cutting, but must be referable to a wider social aim.

The three aims identified by the firm were as follows. The "Retention Aim": attracting and retaining solicitors who aspired to equity partnership. The "Planning Aim": having a realistic long-term expectation ?of where and when vacancies will arise. ?The "Collegiality Aim": desire not to ?have to performance-manage ageing partners to be assured that they continued to be competent.

The Supreme Court held that each of these was potentially a legitimate aim, ?but remitted the case to the tribunal to consider whether retirement at 65 was proportionate to those aims. It was not enough simply to identify a legitimate public interest related aim; the firm had to show that the imposition of a retirement ?age in general was proportionate and ?that the age of 65 was proportionate. This meant showing that it was reasonably necessary in the specific circumstances of the firm.

Return to Earth

On return to the tribunal the firm abandoned the Collegiality Aim, although the tribunal decided that it could take into account the Collegiality Aim to some extent in considering the proportionality of the retirement age as a means of achieving the other two aims. The Collegiality Aim is really a performance management aim. The logic of the argument is that it is undesirable to performance-manage older workers, and to have to dismiss at some point on capability grounds. It is better to avoid those problems by having a fixed retirement age. That rationale is underpinned by an assumption that performance deteriorates with age.

The problem for the firm was in proving that deterioration. 'Retirement Ages in the UK: A Review of the Literature' (Meadows, 2003) which addresses the broader work environment and not law firms in particular, observes that the evidence suggests there is little decline in employees' performance before 70 years of age. Older employees are also able to learn new skills as much as younger ones, but may need more time, Meadows suggests. Employers should consider, in the context of the work their employees are required to do, whether and how their employees' skills are affected by age: in some cases, age and experience may enhance the employees' performance. A lot of businesses have taken the view that proving a tendency to deterioration across a workforce is too risky, and have abandoned compulsory retirement in favour of individual performance management.

The tribunal found that the Planning Aim and the Retention Aims were legitimate aims, and that the application of the retirement age of 65 was a proportionate means of achieving those aims. The tribunal found that the firm's aims could only be achieved by having some retirement age. Of course, the employer must not simply justify a retirement age, but the retirement age in fact applied. Why 65 and not 66 or 67? There was an acceptance by the tribunal and the Supreme Court that the line must be drawn somewhere and there will of course be a disproportionate impact on those who fall on the wrong side of that line. The tribunal observed that the higher the age, the more harm to the firm in retaining associates. However, a lower retirement age would clearly impact more partners. The interest of these different constituencies and of the firm needed to be balanced.

Particular emphasis was placed on evidence that in recruiting associates, it was important to show that there was the possibility of career progression to partnership. There was evidence showing that applicants took into account the likely retirement of partners in considering whether to join a law firm. In cases concerning law firms and similarly structured industries (accountants and architects practices, chartered surveyors, estate agents) this ready acceptance of the evidence will encourage firms to feel confident in adopting or retaining retirement policies.

However, we need to be cautious about drawing principles of general application from the tribunal's endorsement of compulsory retirement as means of achieving the Planning and Retention Aims. Law firms have been unusual in that it is not uncommon for solicitors to work in one firm for several decades and it is common for career progression through the partnership ranks to be within the same firm. Increasingly, employees move from one employer to another, and use such moves as a means of career progression. It remains to be seen how much weight a tribunal would give to the Retention Aim in those circumstances. In industries with an increasingly itinerant workforce, certainty about retirement may not be as great a planning tool as in more static workforces.

Further, the partnership model differs from the employment model, in that each partner agrees to be bound by the rules in the partnership deed, in the knowledge that all other partners agree to the same thing. Those aspects of consent and reciprocity may be relevant to the proportionality of any particular rule.

Journey's End?

At a superficial level, it is tempting to think that nothing has changed. The tribunal found the retirement rule was justified in 2006, and has reached the same conclusion in 2013. After a long journey the parties have ended up just where they started.

However, the tribunal decided the question of proportionality against the background of the law as it stood in 2006, and expressly stated that a similar case may not be decided in the same way now.

Businesses who in the wake of the abolition of the DRA abandoned compulsory retirement rules may not be encouraged to revisit them. Firstly the Supreme Court's requirement that legitimate aims must be social policy aims narrows the range of potentially legitimate aims. Secondly, the outcome of the proportionality test in any given case is uncertain. Due to its peculiar features, the decision in Seldon will not stem the inexorable trend of workers working longer, older and more flexibly.

When Einstein first set out his paradox, his space traveller returned to find his relatives had all aged and died. When he returns now, he is more likely to find ?them still at work.