UK government plans to revamp holiday pay calculation for part-year workers
Out-Law Guide | 24 Mar 2022 | 3:44 pm | 10 min. read
The retirement landscape is changing across Europe, as more employees choose to work longer and employers seek to retain skills and knowledge.
Until recently, it had been the norm for many employees across Europe to retire at the age of 65 or younger. In some countries, such as Ireland, employers could even require their employees to retire at a certain age. However, things are changing. Employees are now more frequently wanting to work past traditional retirement ages for a number of reasons including financial needs and the fact that people are living longer. At the same time, in a market where it is difficult to compete for talent, employers are needing to re-evaluate mandatory retirement ages as they can result in a loss of skills and knowledge within the business.
Currently, the rules surrounding mandatory retirement ages vary across Europe. Mandatory retirement ages are broadly prohibited across Europe, but exceptions apply in certain circumstances on which employers can rely. Employers need to be mindful of the differences in each jurisdiction, otherwise an employer could find themselves in breach of employment equality laws.
Mandatory retirement ages are broadly prohibited across Europe, but some exceptions apply.
The UK repealed the default retirement age of 65 in April 2011.
The position is now governed by the 2010 Equality Act. The Equality Act defines ‘age’ as a protected characteristic and prohibits discrimination on the grounds of age. However, the act provides that direct age discrimination can be objectively justified if it is “a proportionate means of achieving a legitimate aim”.
There is no state or default retirement age in the UK and employers are prohibited from implementing a compulsory retirement age. Clauses within employment contracts purporting to implement a compulsory retirement are also unlawful.
Compulsory retirement is only a possible option where the compulsory retirement can be objectively justified
Consequently, employers should not pressurise older colleagues into resigning, which includes colleagues who may be eligible for the state pension. Any such pressurising of older colleagues is likely to amount to direct age discrimination.
Compulsory retirement is only a possible option where the compulsory retirement can be objectively justified – for example, where the employer can demonstrate that it is a proportionate means of achieving a legitimate aim. The concept of the legitimate aim is construed very narrowly and any form of direct age discrimination must be justified with reference to an aim of public interest in nature that is consistent with social policy. The concept of legitimate aims in respect of retirement is complex and continues to evolve with case law.
There is no statutory mandatory retirement age from employment for private sector employees in Ireland. The Employment Equality Acts 1998-2021 also prohibit discrimination in employment on a number of grounds, including age. However, there is an exception that allows employers to impose a mandatory retirement age on employees provided they can show that the retirement age is objectively and reasonably justified by a legitimate aim and the means of achieving that aim are appropriate and necessary. The retirement age must also be consistently applied. If these criteria are not met, the mandatory retirement age could be seen as discriminatory, and this could prove costly as the Employment Equality Acts provide for compensation of up to a maximum of two years’ remuneration for a successful age discrimination claim.
The Workplace Relations Commission (WRC) Code of Practice on Longer Working sets out a number of legitimate aims for setting a mandatory retirement age including intergenerational fairness, health and safety concerns, motivation and dynamism through the increased prospect of promotion, the preservation of personal and professional dignity by avoiding capability issues with older employees, succession planning, and the creation of a balanced age structure in the workforce.
In Ireland, employees are entitled to the state pension once they reach 66. However, many employers have set their mandatory retirement ages at 65. This gap in a year between retirement and obtaining the state pension age is creating a financial concern for many employees. Due to this and the fact that many employees want to work longer we are seeing mandatory contractual retirement ages being increasingly challenged.
The German statutory retirement age limit – when an employee becomes eligible for a state pension – is between 65 and 67 years depending on the date of birth of the employee. However, the statutory retirement age is not mandatory and employment contracts do not end automatically when a certain age is reached or at the time the employee is entitled to statutory pension. The receipt of any kind of pension does not constitute a sufficient reason for termination.
The agreement of age limits in the employment contract is, however, generally possible under German law. Age limits are often agreed in employment contracts, collective agreements and works agreements. If such an age limit is effective, the employment relationship ends when the employee reaches the intended age without requiring notice of termination. Section 41 of the Social Security Code VI governs whether an age limit is effective or not.
A transparent and explicit agreement under which the employment relationship is to end with the achievement of the statutory retirement age without termination is generally permissible. If the employment relationship is to terminate at an earlier date, this agreement must be entered into or confirmed within the last three years prior to the intended termination date, and the employee needs to be entitled to an early retirement pension.
An employee whose work is terminated through a contractual age limit is not unfairly discriminated against if they receive a pension from the statutory pension insurance.
The French Law 87-588 of 30 July 1987 set out the conditions for employee retirement in France, establishing retirement as an autonomous method of terminating employment contracts, distinct from dismissal or resignation.
The legal regime guarantees employees minimum protection. It also prohibited ‘cut-off clauses’ inserted in collective agreements or employment contracts providing for automatic termination of the employment contract based on the age of the employee.
The termination of the employment contract is only possible if a specific legal procedure is followed and the employer can only retire an employee automatically if they have reached the age of 70. In order to retire an employee under the age of 70, the employer must first obtain their written consent.
Retirement cannot take place before the age at which any employee automatically receives a full pension. This age was set at 65 until 1 November 2016 and will reach 67 in 2023.
In any case, the employee will be entitled to a retirement payment equivalent to the amount of the applicable severance payment and a notice period, plus payment of any unused holiday entitlement.
For Dutch private sector employees, there is no statutory mandatory retirement age from employment. However, parties may agree that a contract of employment for an indefinite period of time ends by operation of law when the employee reaches the pension age. This is usually the Dutch state pension age but it may be another pension age.
However, agreeing a pension age lower than the Dutch state pension age bears a risk for the employer, given that this is only allowed if the employer can rely on an objective justification in the meaning of the Equal Treatment in Employment (Age Discrimination) Act. To prevent disputes, an employer should clearly follow from the pension dismissal clause to which pension age it refers.
Employers may choose to implement compulsory retirement ages for specific roles where there is a proven objective justification for the compulsory retirement age. For example, compulsory retirement can apply in the case of the UK’s Fire Service which has an age limit set by law. In addition, certain jobs within the construction industry which require specific physical abilities may stipulate a compulsory retirement age. Employers are not subject to any duty to consider requests to work beyond a stipulated compulsory retirement age.
The Advisory, Conciliation and Arbitration Service (Acas) has issued guidance to suggest that requests to work beyond a compulsory retirement age should be permitted “if circumstances permit”. Ultimately, it will be for the employer to decide whether it would be appropriate for an employee to be permitted to work beyond the stipulated compulsory retirement age. Employers must be careful with allowing any such requests given that if employees are consistently permitted to work beyond the stipulated compulsory retirement age, that will bring into dispute whether the compulsory retirement age is needed at all.
Employers who are keen to retain the skills and experience of older workers should consider using flexible working practices such as a reduction in hours. As part of an organisation’s diversity and inclusion training colleagues should be encouraged to challenge their unconscious bias about what older workers can and cannot do.
Employers in the UK also need to be mindful of inconsistent treatment, in terms of performance management, between workers of different ages. Some employers shy away from addressing performance concerns with older workers because they are worried about personal or professional dignity at the end of a person’s career and they hope that they will retire soon and that will be an easy fix. The danger with this approach is that, if a younger worker, performing to the same standard is going through a performance improvement process, this difference in treatment may amount to unlawful age discrimination.
Irish employers can offer a fixed-term contract to an employee to enable them to work past the mandatory retirement age. However, the offering of the fixed-term contract must be objectively and reasonably justified by a legitimate aim and the means of achieving that aim must be appropriate and necessary. Such requests must be carefully handled as they can dilute the enforceability of the mandatory retirement age. Similar to the UK, if employees are consistently permitted to work beyond the stipulated mandatory retirement age, that will bring into dispute whether the mandatory retirement age is needed at all.
Employers who are keen to retain the skills and experience of older workers should consider using flexible working practices such as a reduction in hours
The WRC Code of Practice on Longer Working sets out helpful guidance on how employers in Ireland should approach these requests. Where an employee makes such a request employers should consider: whether there are good grounds on which to accept or refuse the request; what are the objective criteria applicable to the request; how would the arrangements for the employee remaining employed be contractually framed; and are there any other alternatives, for example, could granting the request be on the basis of a more flexible working arrangement. A meeting should be organised between the employer and employee and the employer’s decision communicated to the employee as early as practical following the meeting.
Employees can continue to work beyond reaching the statutory retirement age unless a contractual provision as described above is in place.
If the employment relationship actually ends with the achievement of the standard retirement age, the employment relationship can nevertheless be continued. Under section 41 of the Social Security Code VI, the parties to the employment contract may agree during the employment relationship to postpone the termination date, and this can be done several times.
The limit on the number of extensions is where allegations of abuse of law may arise. Therefore, extensive use of the extension option is not recommended.
As regulations on the temporary employment of employees above retirement age are in conformity with European law, German case law also permits the temporary employment of employees above statutory retirement age under the Social Security Code if the agreement is concluded in writing and the newly agreed period of employment is connected with the previous one without a break.
However, if former employees who are of retirement age are to be brought back into a company they are considered as a new hire under German labour law and the general fixed-term regulations must be complied with in this case. A limitation period is therefore only possible under very specific conditions and the individual case must be considered.
The retirement of an employee who meets the legal age requirement is only an option for the employer and not an obligation. The employment contract may therefore continue beyond that age.
If an employee had already reached the age at which the employer could retire them, their age cannot be a reason for the employer to terminate the employment contract.
It is possible for a Dutch employer to re-employ an employee based on a fixed-term contract of employment. From the time the employee has reached the Dutch state pension age, parties may enter into subsequent fixed-term contracts of employment up to a total duration of (including intervals) 48 months or a maximum number of six subsequent fixed-term contracts.
If the maximum duration or the maximum number of contracts is exceeded, the last fixed-term contract of employment will automatically convert into a contract of employment for an indefinite period of time. The chain is broken in cases where the interval between two fixed-term contracts of employment exceeds six months.
If parties have agreed a pension dismissal clause, the employer should be careful not to continue the employment after the employee has reached the agreed pension age. This to prevent, as much as possible, a court finding that after the termination by operation of law, a new contract of employment for an indefinite term has been concluded.
In such cases the employer would not be able to rely on the one-time option to use the employee reaching the agreed pension age or the Dutch state pension age as a ground for termination of the contract of employment and the normal rules on dismissal would apply.
This means termination would either require the consent of the employee or the applicability of one of the valid grounds for dismissal under Dutch law and, depending on the ground for dismissal, the prior permission to give notice of the government agency UWV or dissolution of the contract by the court.
Ciara Ruane, Jason McMenamin, Charanjeet Bhogal, Trish Embley, Sarah Klachin, Anne Cardon, Coralie Vodarzac and Stephanie Dekker of Pinsent Masons contributed to this article
20 Jul 2020
10 Jan 2020
UK government plans to revamp holiday pay calculation for part-year workers