The bill for backdated claims under the age discrimination legislation is likely to top £69 million, insurer AXA has warned.
HR Zone has previously reported on the case brought by Heyday against the British government over its implementation of the age discrimination regulations. The government has set a retirement age of 65 which, Heyday argues, breaches the EU directive the regulations implement. The case was referred to the European Court of Justice (ECJ) for an answer at the earliest opportunity last December.
The problem for employers is that while it is currently possible to insist that people retire at 65, without justification, and be within the law, if any former employee brings a discrimination claim within three months of their retirement date, the claim is being frozen pending the outcome of the ECJ case.
If the ECJ rules that the UK government has interpreted the directive correctly, then these claims will be dismissed. But if it rules that the regulations are unfair – then it could involve compensation awards for all claimants.
According to AXA, the Department of Trade and Industry is predicting 8,000 unfair dismissal claims per year. If this is multiplied by the average compensation awarded to successful claimants in 2005/6, then the total is just over £69 million.
To make matters worse for employers, if it is ruled that the claims are discriminatory rather than unfair dismissal, then the cost could be even higher because there is no cap on discriminatory claims.
Steve Folkard, head of pensions and savings policy at AXA, says: “This 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.
“Employers 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.”
Sue Ashtiany, employment partner at Nabarro Nathanson, concludes: “Although 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.
“Employers are advised to review cases of compulsory retirement dating back to last October to identify and be aware of any potential claimants.”