Hogan Lovells

Key Dates

Judgment issued 2 March 2018.


Summary

Under the rules of the employer's long term incentive plan (LTIP), employees who left the business on or after the customary retirement age in the employee's location with an entitlement to an immediate pension were treated as retiring. As such they were entitled to retain unvested LTIP awards which other employees leaving the business would forfeit.

In the UK, although the customary retirement age had historically been 50, in 2010 it was increased to 55. This reflected the earliest age at which most employees could draw a pension under the defined contribution scheme which had replaced the defined benefit scheme originally offered to staff. An employee who resigned aged 50, who was still entitled to an immediate pension under the defined benefit pension scheme, challenged the provision as unlawful direct age discrimination. The tribunal originally found that the rule was justified direct discrimination, but this was overturned by the EAT.

The Court of Appeal has now reinstated the tribunal's decision that the LTIP retirement rule was justified. The employer had legitimate aims for adopting the rule. One such aim was intergenerational fairness – the employee had more advantageous pension benefits than employees who were members of the more recent defined contribution scheme and the employer did not want to increase unfairness between the two groups by giving individuals with defined benefit pensions more advantageous treatment of LTIP benefits as well. This was a legitimate social policy aspect of intergenerational fairness. The scheme was also designed to reward experience and loyalty and to ensure a mix of generations of staff. Both of these were legitimate aims.

The tribunal had accepted that the retirement age rule was a proportionate means of achieving those aims. Applying the same rule to all employees regardless of which pension scheme they were in achieved intergenerational fairness. Adopting age 55 as the minimum age for retirement struck a balance between rewarding experience and loyalty and encouraging retention. It tied in with pension age so there was a rational reason for choosing it. Further, the rule was triggered by the employee's decision to leave, not by any action by the employer, and he was entitled to retain his vested benefits.

The tribunal had given a properly reasoned judgment that contained no error of law. It was entitled to conclude that the employer had legitimate interests for introducing the rule and that it was proportionate in the circumstances and the EAT should not have interfered with that decision. The age discrimination complaint was dismissed.



Date Accessed: 28/05/2022