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Retirement laws subject to change1st of July 2011
The question of how to deal with older members of staff, particularly those who have worked for a business for a long time, is a difficult one for managers. At present, employers must follow a fairly strict retirement process which penalises them for failing to comply, but which does allow them to choose to retire an employee without the employee having any say in the matter. That is all about to change, writes David Regan from Mundays Solicitors.
The question of how to deal with older members of staff, particularly those who have worked for a business for a long time, is a difficult one for managers. At present, employers must follow a fairly strict retirement process which penalises them for failing to comply, but which does allow them to choose to retire an employee without the employee having any say in the matter. But across Europe this process will begin to fall away and it will become age discrimination to dismiss someone by reason of retirement.
Alternatives to default retirement age
1. Speak to the employee ‘off the record’ - whilst this option is tempting, trying to speak with an employee ‘off the record’ is fraught with difficulty. In brief, simply saying "this conversation is ‘off the record’", or ‘without prejudice’, does not mean that the employee cannot use the conversation against the employer. Therefore an employee could argue that these discussions are an attempt to force them out on the grounds of their age, and consequently sue for age discrimination.
2. Speak to the employee ‘on the record’ - The best time to do this is during annual appraisals, or at regular meetings. Indeed, it may make sense for employers to discuss future plans with all employees at appraisal time, as this will give the employer a better idea of who is looking for advancement, who is happy within their role, who is considering retiring, and plan accordingly.
3. Keep a close eye on performance: many employers are concerned that the change in law means that they will be stuck with staff members who cannot perform and who cannot be retired. This is not the case. In fact, under the new law, employers will have to keep a closer eye on who is performing well, and manage all employees’ performance equally, regardless of age or length
4. Set a corporate ‘normal retiring age’: contrary to popular belief, employers will still be able to set a ‘normal retiring age’ for employees. Although this will be age discrimination, this will be justifiable if the decision can be shown to be a proportionate means of achieving a legitimate aim.
Succession planning - The most obvious difficulty for employers will be that there is no longer a ready-made timetable for retirement, meaning the path to senior positions could be blocked. Employers may also feel unable to ask when an employee is intending to retire, leading to ‘shock’ retirements that leave the employer without a proven successor.
Employee relations - Employers may also find it difficult to start discussions about retirement with employees as detailed above. Even if they do, many employees may not take kindly to the idea that they should retire if they are not ready to do so. In addition, under the ‘old’ law, employees have often been allowed to continue to retirement with managers overlooking lapses in judgment or incremental changes in performance which can be attributed to an employee’s age.
Moving forward, employers will be faced with the unpleasant task of performance managing longstanding, cherished employees if they are not up to task rather than allowing them to continue with the knowledge that retirement is just around the corner.
What is a ‘legitimate aim’? Cases under the ‘old law’ have found legitimate aims to be workforce planning, enabling recruitment and retention of younger employees, avoiding adverse impact on pensions and benefits, ensuring continued competence, and having an age balanced workforce ensuring job opportunities amongst the generations. However, employers will need to be careful when implementing a normal retirement age and will need to show that they have balanced the employee’s rights and dignity against the needs of the business.
Flexible working - In practice some employers may be happy to allow an employee to continue working as long as they choose, and many employees will most likely want to at least reduce their hours, if not finish working completely, as they age. It is important to note that the abolition of the default retirement age has no effect upon the flexible working law which is currently in place, and employers will not be under a duty to allow older employees to work reduced hours unless they are eligible for flexible working in the usual way.
Performance management - In addition to the employee relations issues highlighted above, managers must ensure that performance management processes are implemented fairly across the entire range of employees in order to avoid any accusations of age bias, or trying to force out the older members of staff. In addition, managers will need to watch for age related disabilities and, if any disability is found, will need to consider whether or not any reasonable adjustments may need to be made in relation to the employee and their employment.
There are two exceptions to the abolition of the default retirement age:
1. It does not affect occupational pension schemes and the setting of a 'normal retirement age' for the purposes of occupational pension schemes.
2. Employers may withdraw benefits for employees at or over the retirement age (with the age at which withdrawal will be legal rising in accordance with the state pension age). This exemption deals with a key concern of employers, namely that the rising costs of benefits and insurance for employees over the state pension age could make the provision of these benefits prohibitively expensive.
Controversy with the draft regulations
The draft regulations abolishing the default retirement age in some countries have now been published. In the UK, for example, they appear to make it unlawful to issue a notice of intended retirement date to someone who reached 65 prior to April 6 2011 where that notice expires after April 6 2011. There has been a lot of discussion on this point by lawyers, however we take the view that this is likely an unintended consequence of poor drafting, and that the regulations will be amended to fix this flaw.
The abolition of the default retirement age has the potential to have a large impact on businesses, as staff may choose to remain in their position longer, hindering succession planning, and employers and managers will be forced in many cases to invoke disciplinary procedures to manage the performance of longstanding employees, with a subsequent negative effect on morale.
However, where there is clear ongoing dialogue between managers and staff, and all parties are open to sensible communication, there is no reason why employees continuing to work past the current default retirement age should prove to be a problem. Indeed, managers may find that retaining the services of a valued, longstanding employee for a reduced number of hours during the working week may allow more junior members of staff to learn from someone who would otherwise previously have retired and to gradually take over their role as they ease towards the date at which they intend to retire.
Employers are also still free to choose to set a retiring age for their business, provided that they are able to justify this.