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Removal of Default Retirement Age

April 2011

The default retirement age of 65 will be removed on 1 October 2011, with a six-month transitional period from 6 April 2011 to allow the default retirement age of 65 and the statutory retirement procedure to be phased out. From 6 April 2011, employers are prohibited from issuing new notifications for compulsory retirement using the statutory retirement process. Only employees who were notified of their retirement date before 6 April and whose retirement date is on or before 30 September 2011 can now be compulsorily retired by using the statutory retirement procedures.

What does this mean?

The decision as to whether or not to retire and the timing of that decision is now up to the individual employee, rather than the employer, unless the employer can objectively justify the decision to have a compulsory retirement age for all employees or for those in specific jobs in the company. It is likely that most employers will not seek to use an employer-justified retirement age at this stage, because of the legal uncertainty surrounding the provision of objective justification for such a decision. The financial risks of getting this wrong could be severe: if an employer loses an unfair dismissal and age discrimination claim where an employer-justified retirement age has not been successfully proved, they may be liable for the employee’s loss of earnings for the rest of his or her working life. Employers should make sure that line managers are aware of this major change to employment law and the impact on the way older staff are managed.

Employment Contracts and the Removal of the DRA

-Simply-docs employment contracts with “Normal Retirement Date” clause.

Most of our more detailed and more senior employment contracts contain a clause entitled “Normal Retirement Date” which refers to the default retirement age of 65. From 6 April 2011 this clause will not apply to new retirements and should be replaced. As it is likely to be very difficult for most employers to objectively justify having a compulsory retirement age most employers will now be operating without a compulsory retirement age and it will be up to the individual employee to decide when to retire. Simply-docs has created a Deed of Variation – Simply-docs Retirement Clause which can be used to replace the Normal Retirement Date clause with a new clause appropriate for a company not operating a compulsory retirement age. If this clause is not replaced there is a potential danger that the out of date compulsory retirement clause in the employment contract could be interpreted as evidence of age discrimination.

- Employment contracts for new employees.

All of the Simply-docs employment contracts that contained a retirement clause have now been fully updated to include a straightforward clause applicable for a company not operating a compulsory retirement age. So please download the up to date version of the employment contract you require for all new employees.

- Other employment contracts containing a compulsory retirement clause.

If you are not using Simply-docs employment contracts we have created an alternative Deed of Variation – Retirement Clause which you can use to replace an out of date retirement clause in your employment contracts with the new clause applicable for a company not operating a compulsory retirement age.

- Employment contracts with no retirement clause.

Some of our more basic Simply-docs employment contracts do not contain a retirement clause at all. This is because these contracts are drafted to include only the statutory minimum requirements for an employment contract. Accordingly, as retirement age and procedure is not one of the areas which has to be addressed in the written particulars of employment which employers are required to give to their employees within two months of starting work, it will not be found in some of our more basic employment contracts. However, if you are intending all or some of your employees to be subject to an employer-justified retirement age, then you must specify this in your employment contract even if that contract did not have a retirement clause previously. If employees can retire on a date of their own choosing, there is no legal necessity to have a clause referring to retirement but, for the sake of clarity, you may now wish to insert one.

Performance Management and the Removal of the DRA

The removal of the DRA does not mean that employers must retain older employees indefinitely if they are not capable of performing their job but, now that employers cannot dismiss employees just because they have reached a certain age, having proper performance management processes in place will become increasingly important. Line managers should remember that older people cannot be denied access to training and development on account of their age.

The contents of this Newsletter are for reference purposes only and do not constitute legal advice. Independent legal advice should be sought in relation to any specific legal matter.

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