Take care over ‘retirement’

I’ve had a recent run of cases where an employer has decided that it wants
to exit somebody whose age range is somewhere between 60 and 67 from the
business or organisation, and conversations have taken place where it has
been suggested to the individuals that they might like to ‘retire’.

Firstly, imposing retirement on somebody who may well have a plan to work
for another X years is deeply insulting.

Secondly, the concept of retirement is so linked with older age that such
comments are age discrimination, by their very nature. Even if you were
trying to have such a conversation in a ‘protected’ way under Section 111A
of the Employment Rights Act 1996, to the extent that what you say or do in
that meeting constitutes discrimination, the individual is not barred from
raising those comments as evidence in a claim in a Tribunal. There have
already been examples of Employment Tribunal claims where, for example, the
employer was found to be acting reasonably from an unfair dismissal
perspective in terms of the processes that it was following to e.g. manage
poor performance, but the employer has got themselves into hot water through
making age inappropriate comments in this way. As a much younger employee in the same boat would not face pressure to undertake early retirement, the Tribunals tend to be satisfied that the treatment is age discrimination and the burden of proof then shifts to the employer for them to show that it did not treat the individual less favourably on the grounds of the Claimant’s age. Even where the Tribunal accepts that the option of retirement was not a direct threat but rather as an encouragement to the individual to retire as opposed to persisting with a capability procedure, the employer tends to not be able to discharge the burden of proof.

Further, even where it is the employer’s aim to resolve issues arising, for
example, from poor performance (which is a legitimate aim), the Tribunals
tend to consider that pressure on the Claimant to voluntarily leave their
employment prematurely as an alternative to completing a capability procedure is not a proportionate means of achieving that legitimate aim.

I often see Settlement Agreements where, perhaps in an attempt to have an
agreed reason for leaving which is palatable both to the individual and
perhaps useful to include in things like announcements to customers or
staff, the individual’s exit from the business is framed in terms of their
‘retirement’. This can be problematic when it comes to also wanting to pay
the individual up to £30,000 tax free. There is a risk that if the documentation refers to retirement that HMRC may decide that any Termination Payment that is being made is actually an unapproved retirement scheme in which case they will expect to collect tax on the whole amount. For this reason we recommend shying away from referring to ‘retirement’ in the documentation.