Removal of default retirement age

The UK government has announced plans to scrap the default retirement age of 65 from October 2011.

Currently employers have the right to terminate an individual's employment for reason of retirement at the age of 65 (or the company's normal retirement age, whichever is the later) without paying any compensation to them. This is subject to the employer following a specific process which includes consulting with the employee in relation to their continued employment. Whilst the employee has a right to request that they work beyond the age of 65 as part of this process, there is no obligation for the employer to allow this.

Under the recent proposals, it is suggested that the default retirement age of 65 will be scrapped from October 2011. This has been welcomed by campaigners but could have significant effects for businesses. The proposals (which are currently under consultation) provide that no forced retirement notices can be issued from 6 April 2011. It is also suggested that in conjunction with these proposals the normal pension age will raise to 66 (to take effect no sooner than 2016 for men and 2020 for women) and in circumstances where an individual works beyond the age of 65 they will be entitled to draw a slightly larger pension when they eventually retire.

Whilst these proposals ease the strain on public finances, they have been criticised as many businesses suggest that the removal of the default retirement age would add to employers' costs and under the proposed implementation dates businesses will not have enough time to prepare. Effectively, under the proposals the only way to remove an employee who is 65 or over would be by reason of poor performance, redundancy (the employee would be entitled to their full statutory or enhanced redundancy entitlement), conduct or capability. There are also concerns that this will affect younger workers within the workforce. There has been a suggestion that the government accepts that in some circumstances it will be impossible for employees to work beyond the age of 65 eg police and certain manual jobs. However, in these circumstances, the employer will need to objectively justify its decision to retain any retirement age by showing the decision is a proportionate means of achieving a legitimate aim.

Employers should be mindful of the potential restriction on their ability to manage their workforce and potential increased redundancy liabilities. In addition, employers should consider the potential for the removal of the default retirement to increase the losses employees can seek to recover in respect of loss of earnings in any Employment Tribunal claim (currently it can be argued, where appropriate, that an employee would not work beyond the age of 65. However, this argument will have limited scope following the removal of the default retirement age). Employers should seek advice in relation to any steps they can take to manage their workforce now.

We will continue to keep you updated with any developments on this issue and if you require any further advice on this issue, please do not hesitate to contact us.

To find out more, please contact Gemma Woodhouse

Emergency Budget June 2010

George Osborne delivered his first Budget on 22 June 2010.  Whilst the key themes of the Budget were tax rises and cuts to public spending, which came as no great surprise, various changes concerning employment matters were also announced.  The most notable of these are outlined below:

- Default retirement age - the Budget report confirms that the government will 'consult shortly on how  
  it will quickly phase out the Default Retirement Age from April 2011'.

- Deregulation of employment law - the government's deregulation plans include an immediate 
  review of employment laws 'to ensure maximum flexibility, protect fairness and promote 
  competitiveness'.  The government will be adopting a 'one-in one-out' approach in terms of 
  deregulation whereby no new regulation will be brought in without other regulation(s) being cut by a
  greater amount.

- Benefits payments - with the exception of the state pension and pension credit, benefits will be
  linked to the Consumer Prices Index rather than the Retail Price Index going forward.  This is
  expected to result in smaller increases to benefits payments such as statutory sick pay and
  statutory maternity pay.

- Tax and national insurance contributions - as from 6 April 2011, the income tax personal allowance
  for those aged under 65 will increase from £6,475 to £7,475 and, to ensure that higher rate
  taxpayers do not benefit from the increase, the threshold above which higher rate tax is paid will be
  lowered.  The threshold for both employers' and employees' national insurance will also increase
  as from 6 April 2011, and the level of employers' and employees' national insurance contributions
  will, at the same time, rise by 1%. 

- PAYE - the government has committed to explore ways of improving the existing PAYE system.  A
  consultation will also take place in respect of introducing powers for HMRC to require financial
  security where there is a risk that PAYE and national insurance contributions will not be paid. 

Key 'non-changes' include the 50% additional income rate which took effect from 6 April 2010 and applies to income over £150,000.  Further, the government will not be implementing the previous government's plans for restricting pensions tax relief for high earners, which were due to be implemented from 6 April 2011.

To find out more, please contact Liz Cardy

Foreign workers: out for the count

It is already well-documented in the press that the government has recently announced its intentions to introduce a cap to limit the number of non-EU economic migrants entering the UK.  A consultation has been launched as to the best mechanism for this, and as to what additional measures should be taken to find alternatives to migrant labour.

HR professionals need to be alert to some of the potential employment law issues which may arise if and when a cap of this nature is introduced.  As always, the devil is in the detail, so until we have a clear picture of exactly how the cap is intended to operate, it is difficult to provide any concrete advice on what changes may need to be made to recruitment policies.  But even at this stage, it is apparent that whatever mechanism is adopted, there will inevitably be a risk of an increase in race discrimination claims. Consider the following: in 2011, a major new NHS hospital will open in Kent.  With over 400 individual patient rooms, it will need an army of doctors, nurses, carers and administrative staff to run the site, all of whom will need to be recruited to take up their roles within a very short time-window.  It is well known that a proportion of medical staff in hospitals are foreign workers who have qualified abroad and come to the UK to take up jobs available in our hospitals.  What if the majority of the 'best' candidates are from overseas, but the impact of the immigration cap is that the local NHS trust who will employ the staff can only take on a lower proportion of foreign workers? The employer will presumably have to reject the applications of those who would otherwise be the most appropriate candidates in favour of lesser-qualified EEA nationals in respect of whom the cap does not apply.  How can the local NHS trust protect itself from a potential claim for direct race discrimination in those circumstances?

It would be nice to think that when the eventual legislation emerges, these sorts of issues, which will directly affect employers up and down the country, will have been thought about carefully, and clear guidance made available.  Don't count on it, though...

To find out more, please contact Jon Heuvel

Cheltenham Borough Council v Laird

During a recruitment process, there is often a genuine requirement of an employer to assess whether an applicant is fit and able to do the job advertised.  A common way of undertaking this assessment is with the use of a pre-employment medical questionnaire. What is an employer's position where an employee fails to disclose something which might materially affect their ability to fulfil the role that they have applied for. This issue arose in the recent decision in Cheltenham Borough Council v Laird in which an employer sued a former employee for fraudulent misrepresentation in failing to disclose stress related illness on her medical questionnaire.

Click here to view the full article.

To find out more, please contact David Bickford

Contractual redundancy pay cap was not unlawful age discrimination

Under the Employment Equality (Age) Regulations 2006 ('Regulations'), any enhanced redundancy policy that does not calculate payments due to employees in accordance with Regulation 33 of the Regulations (which effectively mirrors the calculation of the statutory redundancy payment scheme save for changes in the weekly pay cap and multipliers (provided the multipliers are based on the statutory multipliers) will be discriminatory unless it can be shown that the calculation of any redundancy entitlement is a proportionate means of achieving a legitimate aim.

This issue was recently considered by the Employment Appeal Tribunal (EAT) in the case of Kraft Foods UK Limited v Hastie. The company operated a voluntary redundancy scheme under which employees were entitled to receive 3.5 weeks actual pay for each complete year of service. The scheme applied a cap which limited any redundancy entitlement to the amount an employee would have earned (at their current rate of pay) had they remained in employment until their normal retirement age (65). Mr Hastie volunteered for redundancy under the company's enhanced policy. As he was two years away from retirement the redundancy payment was reduced by £13,600 due to the cap. Mr Hastie subsequently brought a claim at the Employment Tribunal of unlawful age discrimination.

During the proceedings, Kraft Foods UK Limited accepted that the cap constituted a 'provision, criterion or practice' which disproportionately affected employees approaching 65 and would constitute unlawful age discrimination unless it was justified. Kraft suggested that as the scheme was intended to compensate employees for loss of earnings which they would have been entitled to had they remained in employment and all employees lost the legal right to remain in employment when they reached 65, the cap was justified as it prevented employees receiving a windfall. In the first instance the Employment Tribunal found in favour of Mr Hastie. This was on the basis that the cap created a significant loss for Mr Hastie but when considering Kraft's entire redundancy bill, it was not significant to the company. As the cap did not strike a balance between the effect on the staff and the needs of Kraft's business, it was not justified.

Kraft appealed to the EAT.  At the EAT Mr Hastie argued that a payment under the scheme was not designed to compensate employees for their loss of earnings following the termination of their employment as payments were calculated with reference to length of service rather than loss of earnings and no account was taken of the employees' ability to find a new job in any enhanced redundancy calculation. The EAT disagreed and found that the purpose of enhanced redundancy schemes was to compensate for loss of employment, albeit that the method of calculation had evolved from long-established industrial practice and made no assessment of that loss.

The EAT found in favour of Kraft. In making its decision, the EAT drew 'strong support' from the obiter within Loxley v BAE Systems Land Systems (Munitions & Ordnance) Limited which suggested that provisions within employment policies that properly seek to prevent a windfall are likely to be justifiable.  It held that the scheme operated by Kraft was designed to compensate employees who took voluntary redundancy for the loss of earnings they had a legitimate expectation of receiving if their employment continued. The scheme could therefore legitimately include a provision which was designed to prevent excess compensation and the cap used by Kraft was a proportionate means of achieving that aim. In particular, despite Mr Hastie's argument that the removal of the taper from the statutory redundancy scheme implied that tapering could not be justified, the EAT commented that the cap used by Kraft could prevent windfalls more accurately than the application of a taper (which is common in enhanced redundancy policies).

To find out more, please contact Gemma Woodhouse