By David Murphy, Senior Associate At Fox Williams LLP
The planned abolition of the default retirement age (“DRA”) offers HR professionals a silver bullet to use in their ongoing battle to persuade line managers to deal with their employees’ performance issues. It has the potential to reduce the tendency of managers to shy away from delivering tough but necessary performance messages to employees — a tendency which usually results in poor performance continuing to the detriment of the business.
Coasting to retirement
Poorly performing employees approaching retirement have until now often been allowed to carry on in employment until retirement. Usually the reason has, at least part, been benign - not wanting to put a soon departing employee through the humiliation of a performance management process, particularly if their performance has historically been good, when retirement allows a dignified and non-confrontational exit.
The planned abolition of the Default Retirement Age
This “head in sand” approach to performance management has been possible because employers have been able to retire staff legally at the age of 65, the DRA, provided they follow a set procedure.
However, the planned abolition of the DRA in October 2011 will make it unlawful for employers to force their employees to retire at a particular age unless the employer can objectively justify its reasons for doing so. Some employers may be able to do this (for example employers of air traffic controllers or fire-fighters) but others may not be able to do so. A recent survey carried out by Fox Williams indicated that employers are reluctant to retain a company retirement age once the DRA has been abolished because of the risk of a legal challenge that a compulsory retirement age is unjustifiable age discrimination.
Good performance management will be key
The inability to rely on the DRA and the difficulties of justifying a company retirement age will make it much more difficult for employers to retire their staff lawfully. Employers will need to satisfy on one of the fair reasons for dismissal set out in legislation, the most obvious of which is “capability” (i.e. performance or ability to do the job).
This will mean that good management of performance will become much more important as many managers will no longer be able to rely on retirement as a reason for dismissal and a means of abdicating their responsibility to manage performance.
As those in HR know all too well, dismissing an employee where there is a lack of contemporaneous evidence of performance problems having been communicated to him or her makes a fair dismissal difficult and increases the company's legal and financial exposure. In addition, it leaves the door open to the employee to claim that their dismissal constitutes discrimination on grounds such as their age, sex or race.
As a result any settlement deal usually costs the company more than if it had a record of having followed a proper performance management process. Therefore weak managers who are allowed to continue with their current ineffective approach to performance management are likely to cost their companies dear.
This will be a particular concern in the case of older employees who may not work again and seek to be compensated accordingly for their lost earnings through a Tribunal claim.
What should HR do?
• Get directors/senior managers to “buy in” to better performance management by explaining the clear business case for it. They can lead the required change in culture and cascade the message down to other managers.
• Work with managers to ensure all employees have clear job descriptions, responsibilities and objectives.
• Ensure all managers hold regular reviews/appraisals with employees (at least once or twice a year).
• Encourage managers to provide employees with feedback which is clear, accurate and timely.
•Help management implement performance management processes where performance falls below the standard expected.
• Lead by example in their own teams.
David Murphy is a senior associate at City law firm Fox Williams LLP who specialises in advising employers on employment law issues. For more information see www.hrlaw.co.uk
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