Should we include a retirement age in our contracts of employment? Part 1

In this part 1 of a 2 part series, we look at the issue of including a retirement age in our contracts of employment.

Due to an upsurge in litigation taken by aggrieved employees who have been forced to retire, employers are becoming increasingly more wary of including retirement ages in their contracts of employment.

However, in spite of the recent developments in the legislation and case law, the inclusion of a mandatory retirement age in a contract of employment is an important first step in successfully enforcing a compulsory retirement age.

While most of the litigation surrounding compulsory retirement ages is concentrated on claims for age discrimination, there is also a risk that a forcibly retired employee may take a claim for unfair dismissal.

Successfully retiring an employee consists of two steps:-

1. The employer has to establish that a contractual retirement age actually exists; and
2. That the contractual retirement age is objectively justified.

Should the retirement age be expressly included in the contract of employment?

By including an express mandatory retirement age in a contract of employment, an employer has satisfied the first step.

If an employee is aware of the normal retirement age, has reached that age and has been forced to retire, that employee will not be successful in a claim for unfair dismissal.

This is because the Unfair Dismissals Acts 1977 – 2015 excludes certain categories of employees from its protection. One such category that is excluded is employees:-

“who, on or before the date of dismissal, had reached the normal retiring age for employees of the same employer in similar employment or who on that date had not attained the age of 16 years.”

Accordingly, if an employer can demonstrate that the ending of the contract of employment arose by virtue of the employee reaching the normal retirement age for that employer, the retirement of an employee will not constitute an unfair dismissal.

However, in the absence of an objective justification for the retirement age, an employer may be vulnerable to a successful claim for age discrimination which is addressed below.

What if there is no retirement age in the contract of employment or the staff handbook?

While it is preferable that an employer includes an express retirement age in its contracts of employment or the staff handbook, its absence is not necessarily fatal in defending a claim.

However, the difficulty for an employer is that it now faces the uphill struggle of establishing that the retirement age is an implied term in the employee’s contract of employment.

To prove that a retirement age is an implied term of an employee’s contract of employment, an employer will generally seek to rely on custom and practice. If the employer can establish that the retirement age was so well known, clear and uninterrupted, it will be implied into the employee’s contract and will have the same effect as if it was expressly agreed between the parties.

Clearly, having an express contractual term saves the employer time and expense in trying to prove that a retirement age is an implied contractual term.

Provided the employer has established that there is an expressly agreed retirement age, or that the retirement age is an implied term into an employee’s contract of employment, the employer has a strong defence to a claim for unfair dismissal.

However, the employer is only one step along the two step process in successfully defending a claim for age discrimination.

In part 2 we will look at:-

1. how an employer defends a claim for age discrimination, and
2. the potential exposure.

For further information on this topic, please contact Laura Graham at lgraham@reddycharlton.ie