Loophole leaves UK plc at risk of 60M backdated unfair dismissal claims in next 12 months

AXA today warns that UK employers could be sued to the tune of 60m in backdated discrimination claims for forcing people to retire at the age of 65. Employers who do so are acting within the law as it currently stands, however a ruling awaited by the European Court of Justice (ECJ) could leave them facing expensive compensation claims in the future.

The background

The National Council on Aging (NCA) has persuaded the High Court to ask the ECJ if the new UK Age Discrimination Regulations, effective from 1 October 2006, have been implemented properly.

The NCAís concern is that these Regulations allow employers to retire employees at the age of 65 even if they wish to continue working. So, while the new law permits employees to appeal against forced retirement, it allows employers to retire them compulsorily without having to justify the decision. This means that even under the new Age Discrimination Regulations enforced retirement at 65 is still legal - it just takes longer.

The worry is that if the European Court makes a ruling in favour of the NCA, British Businesses could be at risk from unfair dismissal claims dating back to 1 October 2006 ñ the date the Regulations came into force. Disgruntled employees can ëbankí unfair dismissal claimís as long as they are filed within three months of the date of their retirement. These claims will then be frozen pending the ECJís decision which could take between 12 and 24 months.

If the ECJ dismisses the NCAís claim then the íbankedí claims will eventually be dismissed too. However, if the ECJ rules that the Regulations are unfair, it could involve compensation awards for all claimants.

The cost

The cost to UK PLC would be hefty. International retirement research to be released by AXA next week has found that of those in retirement now, 28% said it was imposed by their employer. The DTI predicts 8,000 unfair dismissal claims per year and according to the Employment Tribunal Service Annual Report 05/06 the average compensation awarded to a successful claimant is 8,679. This means that if British businesses continue to force retirement and the ECJ rule that the Regulations are unfair, they could face compensation claims in the region of 60m. Discrimination claims cost even more, as there is no cap on the potential awards.

The experts comment

Steve Folkard, Head of Pensions and Savings Policy at AXA, says: ìThis will be worrying news to employers. The real cost of a successful claim will be even higher when legal costs and damage to reputation are taken into account.

ìEmployers had hoped to avoid having to justify their reasons for retiring employees at 65. However a ruling by the ECJ could leave them under scrutiny. Employers should review their retirement policies and decision making processes now to protect against retrospective claims.î

Sue Ashtiany, Employment Partner at Nabarro Nathanson, concludes: ìAlthough it is difficult to predict the outcome of this case employers must be aware that maintaining a compulsory, fixed retirement age could lead to a long period of uncertainty and a large number of potential discrimination claims. In an attempt to avoid future claims, some employers are now considering abandoning a compulsory retirement age altogether whilst others have already done so.

ìEmployers are advised to review cases of compulsory retirement dating back to last October to identify and be aware of any potential claimants.î