The retirement of Hungarian judges might not seem, at first glance, to be the most pertinent case for UK employers. However, the ECJ's recent decision provides interesting guidance on compulsory retirement ages and age discrimination.

Previously in Hungary, judges, prosecutors and notaries were required to retire from office at 70. However, with effect from 1 January 2012, the Hungarian legislation was amended so that judges and prosecutors would be obliged to retire at 62 instead. The same will apply to notaries from 1 January 2014. The rationale for the change was to standardise age limits for retirement for public sector professions and to establish a more balanced age structure facilitating access for young lawyers to the professions concerned. The amended legislation provided for a very short transitional period during 2012.

Traditionally, the ECJ has generally been quite relaxed about age discrimination against older workers in the application of a compulsory retirement age. However, the radical lowering of the retirement age from 70 to 62 for Hungarian judges was a step too far. Although the ECJ accepted that the aims were both legitimate, it felt that the means taken to achieve them were not proportionate in the circumstances.

In terms of standardisation, the ECJ found that the amended legislation had abruptly and significantly lowered the age limit, without providing for transitional measures that would protect the legitimate expectations of those persons. This was in contrast to the approach the Hungarian Government had adopted in relation to the increase to the general pension scheme retirement age by three years, which had been staggered over an eight year period. The ECJ also found that the way the Hungarian government had lowered the retirement age would not achieve a truly balanced age structure in the medium and long term. Instead, there would be a rush of vacancies created in the first year and, after that, turnover would probably return to previous levels.

How will this decision impact the UK approach to compulsory retirement ages? There is no longer a default retirement in the UK but the issue is still very much a live one in the context of individual employers being able to justify the continued use of a compulsory retirement age.

The most significant English court case on this topic was Seldon v Clarkson-Wright and Jake, which was heard by the Supreme Court earlier this year. The Court accepted that the firm had a number of legitimate aims in having a compulsory retirement age of 65 for partners. In addition, the Court recognised that there was a distinction between the approach to be adopted when justifying direct versus indirect age discrimination. The Supreme Court looked at the ECJ case law and upheld the principle that in a direct age discrimination claim, the only legitimate aims on which an employer could rely were social policy objectives of a public interest nature, such as workforce planning or maintaining the dignity of older workers. Individual aims which relate to the employer's situation, such as cost reduction or an improvement in competitiveness, would generally not constitute legitimate aims in these circumstances.

However, identifying a legitimate aim may not be the greatest hurdle for employers looking to justify a compulsory retirement age. As with the Hungary case, proportionality is likely to be the main stumbling block. If the Hungarian government had introduced a longer transitional period to implement the changes, it is likely that the outcome would have been different. Similarly, although the UK courts have tended not to be so lenient in their approach to justification, there is still scope for employers to adopt a compulsory retirement age. In essence, the employer's aim must correspond to a real business need, the means that they adopt must actually meet that need and go no further than reasonably necessary to do so. In many cases, employers will find this a difficult hurdle to overcome.

If employers continue to apply a compulsory retirement age, they should take the following steps to ensure that they are in the best possible position to justify this approach:

  • Ensure that there is an explanation, not only for why a compulsory retirement is necessary, but why a particular age is necessary, with evidence to support this. Consider why the particular retirement age is considered appropriate, e.g. whether there is evidence to suggest that performance declines after a certain age, or that retiring people at a certain age will directly affect the promotion prospects of younger workers.
  • Ensure that the rationale can be linked to one of the permitted legitimate social policy aims (i.e. legitimate employment policy or labour market vocational training objectives). Aims which have been held to be legitimate are: promoting access to employment for a particular age group; the official planning of the departure and recruitment of staff; ensuring a mix of generations so as to promote the exchange of experience and new ideas; avoiding disputes about an employee's fitness for work over a certain age.
  • Consider whether the aim of the retirement age is legitimate in the particular circumstances of the case (the workforce as a whole, rather than an individual employee). For example, avoiding the need for performance management amongst older workers might be a legitimate aim but, if the employer has sophisticated performance management measures in place, it may not be legitimate to avoid performance management for only one section of the workforce.
  • Consider whether there are any alternative, less discriminatory way, to achieve the aim in question, e.g. using fitness or competency tests, rather than age, as a criteria for retirement.
  • Consider whether the retirement age is applied consistently. Any deviations are likely to undermine the assertion that the chosen cut-off point is necessary.