Alexa Etheridge analyses the European Court of Justice's ruling on the recent Spanish case of Felix Palacios de la Villa v Cortefiel Servicios SA (C-411/05) and the impact of this case on Heyday's challenge to the UK's compulsory retirement age.

Law

The European Directive (2000/78/EC) (the "Directive") adopted in 2000 laid down a general framework for equal treatment in employment, including combating discrimination on the grounds of age. As a consequence, the UK passed the Employment Equality (Age) Regulations 2006 (the "Regulations"). Since October 2006, employers are prohibited from treating employees less favourably due to their age. If they do, employees may lodge a claim for age discrimination in the employment tribunal.

Despite the Regulations, it is still lawful for employers to force their employees to retire once they have reached 65 years of age as long as they follow a certain procedure. The correct procedure involves the employer writing to the employees at least six months before their retirement date. If the employee wishes to continue working a meeting must then be held with the employee to discuss this. However, the employer does not have to agree to the request, or provide a reason for the refusal, and is just obliged to inform the employee of their decision.

Heyday challenge

Many are of the opinion that the Regulations do not offer the same level of protection as the Disability Discrimination Act 1995 or the Race Relations Act 1976 in that the Regulations currently give very little protection against age discrimination for anyone over 65 years of age. The Heyday Group who are backed by Age Concern share this opinion and have in fact challenged the right to terminate an employee's contract of employment once they have reached 65 in the High Court, as they consider such a right contravenes the Directive. They also agree that employers should have to give a reason for the employee's dismissal.

The High Court consequently referred the matter to the European Court of Justice ("ECJ") asking for an interpretation of the Directive. Once the ECJ has delivered its judgment, the High Court will rule on whether the Regulations properly implement the Directive. A decision may not be handed down until as late as 2009.

The uncertainty surrounding the Heyday challenge has made some UK employers, who are considering dismissing their employees once they reach 65 years of age, extremely nervous. Furthermore, the President of the Employment Tribunals Service in England and Wales has ordered that all age discrimination claims from employees aged 65 years or over who have been forced to retire must be "stayed" pending the outcome of the Heyday challenge. Anyone who has been through the retirement process and has been forced to retire can still lodge a complaint in the employment tribunal. Their rights will be preserved and the complaint held until the ECJ has reached its decision. Consequently, even if employers follow the correct procedures set out in the Regulations for dismissing employees who have reached the retirement age of 65 or above, they may still face an age discrimination claim if the Heyday Group is successful.

Many are however of the opinion that the Heyday challenge will be unsuccessful and that employers have nothing to fear following the recent decision in the Spanish case, Felix Palacios de la Villa v Cortefiel Servicios SA (C-411/05) ("the Palacios case").

The Palacios case

Mr Palacios de la Villa ("Mr Palacios") was a Director of the Spanish garment company, Cortefiel. After Spain passed a law introducing a legal retirement age of 65 he was informed by Cortefiel that his employment would be terminated as he had reached the company's compulsory retirement age of 65. Although Mr Palacios had worked long enough to be granted his full retirement pension he still wished to stay in his job.

Under Spanish law, compulsory retirement provided for in collective agreements concluded before 3 July 2005 is lawful provided the employee can continue to work beyond the retirement age if they have not completed the qualifying period required to draw retirement benefits (there are separate provisions regarding retirements after 3 July 2005).

At the date that Mr Palacios' employment was terminated he had completed the period of employment necessary to draw a retirement pension and as such his employer believed that it was in a position to lawfully terminate his employment by reason of retirement.

Mr Palacios considered the termination of his employment to be discriminatory on the grounds of his age and that the Spanish laws were in breach of the Directive. He consequently brought a claim against Cortefiel, which was referred to the ECJ.

On 16 October 2007, the ECJ ruled that Spain's compulsory retirement age of 65 years is lawful. It held that compulsory retirement ages are lawful if they are underpinned by a "legitimate aim" and that the means of achieving the aim are "appropriate and necessary".

In this case the Spanish Government argued that the setting of a compulsory retirement age was part of a national policy seeking to promote employment and create labour opportunities across different age groups to reduce unemployment.

The Spanish legislation also took into account the fact that the employees affected were entitled to financial compensation by way of a retirement pension at the end of their working life.

How will the Palacios case affect the Heyday challenge?

Some say that the outcome of the Palacios case will diminish the chances of the Heyday challenge succeeding and that it will remain lawful in the UK to impose a compulsory retirement age of 65 or above. Others are less sure for the following reasons:

• The Spanish law was deemed by the ECJ to be legitimate as it was part of the Spanish Government's policy to regulate the national labour market and to reduce unemployment. The Spanish Government had documented a debate regarding unemployment that led to the introduction of the rules. The collective agreement applicable to Mr Palacios' employment also specifically referred to a reduction in unemployment.
  
  
• The UK Government will have to come up with some cogent explanation as to why employers should be permitted to force employees to retire at 65 years of age. The lawyers representing the UK Government may also try to convince the ECJ that the UK wishes to use the default retirement age as a method of reducing unemployment. The difficulty that the UK Government will have is demonstrating proof that this policy existed when it passed the Regulations. In the UK the only clear statement from the Government as to why the mandatory retirement age was retained was due to "significant numbers of employers" using "a set retirement age as a necessary part of their workforce planning. Whilst an increasing number of employers are able to organise their business around the best practice of having no set retirement age for all or particular groups of their workforce, some still rely on it heavily".
  
  
• It would appear that this statement, "some still rely on it heavily", was a primary reason for the UK setting a default retirement age of 65. This is a very different reason to Spain's national labour market policy argument. In addition UK law, unlike Spain and several other European States, does not require mandatory retirement arrangements to be collectively agreed.

It would therefore not be surprising if the UK default retirement age of 65 is deemed unlawful by the ECJ and so must subsequently be abolished.

If Heyday is successful the UK courts could be full of age discrimination cases. This would include cases that have been stayed pending the outcome of the Heyday challenge. This could be extremely costly for employers.

If employers have any concerns regarding terminating the employment of any employees reaching the compulsory retirement age they should seek legal advice.

We await the outcome of the Heyday case with anticipation.

This article was first published on Consult Gee HR during January 2008. www.consultgee.co.uk