Scottish Court of Session Decisions

The appellant in this case is a prison officer. He was born on 4 June 1937. Until 30 September 1995 he was employed by the Secretary of State for Scotland, representing the Scottish Prison Service, who are the respondents in this appeal. He held the grade of Principal Officer (Instructor) at Polmont Young Offenders Institution. He commenced work with the Scottish Prison Service in August 1971 having responded at that time to an advertisement. He was attracted to the work because he understood that, whereas he had the right to retire when he reached 55 years, he could continue to work on for a period beyond 55 if he so desired. During that extended work period he could add to his pension on very advantageous terms. It

should, however, be noted that an unqualified right to work on until 60 was never at any time included in his contract

Prior to 1987 the retirement arrangements operated by the employers were that the earliest age at which a prison officer could retire was 55. However, they could immediately be re-employed in the same job at the discretion of the employers. The discretion of the employers was invariably exercised in favour of re-employment. The advantage of the system was that the employee, if desired, could have the benefit of immediate access to a lump sum pension payment.

An officer who opted to retire at 55 years and thereafter take advantage of the re-employment opportunity was said to be "disestablished". However the employee reaching 55 had an alternative option. Subject to the employer or employee each having the right to terminate the employment before the employee reached 60 (by either of them giving three month's notice), the employee could work on until that age. However there was no provision to enable an employee to work on beyond 60.

When the appellant was about to reach 55 years of age, in July 1991, he decided against the "disestablishment" option. He wrote to the Governor of Polmont requesting that he be allowed to carry on with the job he then had for another 5 years, until he attained the age of 60. On 25 July of that year the respondents' personnel officer wrote to him intimating that the Department had decided that the appellant could continue in the service beyond the age of 55, subject to his continuing to undertake the full range of duties of his grade and provided that he maintained an acceptable attendance record and level of efficiency. However, the letter proceeded to state what may be an important further qualification namely; "It should be borne in mind, however, that retention beyond the minimum retirement age is at the Department's discretion and subject to regular review. Retirement may therefore be effected at any time and is subject to 3 months notice on either side". The appellant accepted the qualification thus expressed and he continued with his employment, seemingly without ever suggesting that the letter of 25 July in any way offended against his contract.

In 1992 a circular was sent to all employees, including the appellant, intimating that from that date the Scottish Prison Service would be operating an Equal Opportunities Policy. Thus no one in the Service would be discriminated against on grounds of gender, race, religion, sexual preferences, disability or age. In the present appeal it is not disputed that this policy became, after intimation, a condition of the contract of service of employees, including the appellant.

It seems not to be disputed that prior to at least 1994 it was the policy of the Scottish Prison Service to allow employees, who had opted to carry on beyond the age of 55, to remain in service until the age of 60. Thus whatever the contractual rights of employees they had an expectation that they would continue in employment until that age.

In 1994 an important change took place in the structure of the Scottish Prison Service when it became an Executive Agency responsible to the Secretary of State. This change prompted a Staffing Structure Review. This resulted in the introduction of new gradings and pay bands. The purpose of the changes was not only to save money but to facilitate the introduction of new, younger, and differently skilled recruits mainly from outside the Prison Service. However, the effect of the changes was that the service required to lose 1,000 of its current employees.

Understandably the employees were generally unhappy about the changes and there were extensive negotiations between the employers and the Prison Officers Association. One outcome of the negotiations was that the employees gained an undertaking that, in order to achieve the necessary staff reduction there would be no compulsory redundancies. However, as part of the global package certain concessions had to be made by the employees' representatives. One was that certain changes to the retirement arrangement had to be accepted. These were that employees who had passed the 55 year age barrier would be retired on 6 months notice.

This was to release at least 100 employees. In consequence of the new proposals, on 9 January 1995 the appellant received a letter from the respondents to the effect that his employment would end on 30 September 1995 unless he could show that he should be treated exceptionally (the last-mentioned consideration being a qualification of the new retirement policy). However the appellant did not seek to bring himself within the excepted categories and it is apparently not suggested that he was eligible to do so.

The appellant never accepted the change in the respondents' retirement policy. Nor was any such change incorporated expressly into his contract of employment. Following his said compulsory retirement he applied to the Industrial Tribunal. There his solicitor attacked the compulsory retirement on three grounds. The first was that the appellant had been unfairly dismissed. The second ground appears to have been that in the whole circumstances regulating the appellant's contract, the respondents had no contractual right to terminate his employment in September 1995. The third ground was more specifically related to the ground for the respondents' exercise of their discretion to apply retirement in this manner. The appellant claimed that the respondents terminated his employment because of his age and that consequently they were in breach of contract in that they had violated the Equal Opportunities Policy which was incorporated into the contract of service.

The Industrial Tribunal, after a hearing which lasted 4 days in August and October 1996, issued their decision on 6 March 1997. This was entered in the Register on 11 March 1997. Their unanimous decision was in the following terms:

It should be noted that the Tribunal found as a fact that the change in the respondents' retiral arrangements was part of a policy to bring about the loss of 1,000 staff for the purpose of bringing in younger employees with different skills who could be paid less. Their further finding was that the change in policy "was principally a question of age and was contrary to the respondents' equal opportunities policy and directly discriminating on grounds of age." The Industrial Tribunal went on to conclude that "in the circumstances we take the view that the fact that the applicant was treated less favourably because of his age is a breach of the provisions of his contract of employment"

As a result of the findings of the Industrial Tribunal the Secretary of State appealed to the Employment Appeal Tribunal. Before that Tribunal the lower tribunal's finding that the appellant's contract had been breached by age discrimination was put in issue. In its Judgement dated 26 August 1997 the Employment Appeal Tribunal held that, as a matter of law, on construction of the appellant's contract of employment, the operation by the employers of the express retirement provisions could not be said to be a breach of the Equal Opportunity stipulations in that contract. The appeal was accordingly allowed and finding No. 3 in the Industrial Tribunal's findings was quashed. The appellant in the present appeal appeals against that decision.

In presenting his appeal Counsel for the appellant sought to have re-instated the decision of the Industrial Tribunal that when the employers forced the appellant to retire they breached his contract by an act of age discrimination. He contended that the negotiations with the Prison Officers Association had not affected the appellant's contractual rights (and indeed the respondents for their part did not attempt to argue otherwise). The job which the appellant was doing was now being done by a younger and less expensive person. There had been no complaint about the appellant's ability to carry out his work. Accordingly he had been displaced to accommodate a younger person. That was the reality of what has happened and the employers' conduct is plainly age discrimination. A distinction can be made between setting an upper retirement age and applying a discretionary element in the operation of a retirement policy. In the latter situation it is possible to discriminate against an employee because of his age. It was said that the Employment Appeal Tribunal could have held that the actings of the employers were not discriminatory. In that event there would be no need to resort to the construction of the contract. Nevertheless such a conclusion would have contradicted the express factual finding by the Industrial Tribunal that the employers' actions amounted to an act of discrimination based on age. On the other hand if the respondents accept that the retirement practices adopted by the employers do involve age discrimination, then it is difficult to see how a conclusion that there has been a breach of contract can be avoided. The respondents have failed to cross-appeal on the basis that they do not accept the Industrial Tribunal's finding that there was discrimination based on age.

We were then referred to a number of authorities. In particular we were referred to Grant v South West Trains Ltd [1998] I.R.L.R. 188 and Wandsworth London Borough Council v D'Silva [1998] I.R.L.R. 193 C.A. These cases are principally concerned with the question whether a policy decision had been incorporated into a contract of employment to become a condition thereof. However, we must observe that they do not assist much in this case since it is no longer disputed that the respondents' Equal Opportunities Policy had been incorporated into the appellant's contract as a condition. We were referred to Cadoux v Central Regional Council [1986] I.R.L.R. 13 O.H. Again this was a claim which failed because relevant provisions were held not to have had contractual force. Malik v B.C.C.I. [1997] ICR 606 H.L. was perhaps of more interest since, apart from its authority as a decision of House of Lords, it was cited in support of certain general principles of contractual construction. In relation to a contract of employment Lord Steyn (at p. 622) approves a statement in an article by Mr Brodie of Edinburgh University to the effect that in assessing whether there has been a breach, it seems clear that what is significant is the impact of the employer's behaviour on the employee rather than what the employer intended. That impact will be assessed objectively. Finally we were referred to Hill v General Accident Fire and Life Assurance Corporation plc [1998] IRLR 641 decided by Lord Hamilton in the Outer House. His Lordship repeats and apparently accepts views expressed in Malik that, because of the vulnerability of an employee to the employer's actions, there would be an implied term in the employee's contract that an employer would not, without reasonable and proper cause, act in a manner likely destroy or seriously damage the relationship of confidence and trust between employer and employee. The principles of construction derived from these cases were not really challenged and we have no difficulty in accepting them as general rules.

In reply Counsel for the respondents contested the suggestion, made on behalf of the appellant, that his clients had not attacked the alleged finding of the Industrial Tribunal that the appellant had been made to retire in consequence of a discriminatory act. Their opposition to the finding had been argued before the Employment Appeal Tribunal and the decision of that tribunal was effective acceptance of the respondents' position. Indeed at page 6 of their Judgement they had said

The respondents had to accept that a retirement policy was a discriminatory act and was dependent on an age factor but it was not a breach of the appellant's contract. The respondents contended that once an employee reaches the minimum retirement age of 55 then he becomes vulnerable to retirement and all equal opportunity rights fly off. If the respondents decide to exercise their right to make employees retire their motives are quite irrelevant. The essence of any retirement policy is that older persons give way and are replaced by younger. The respondents changed their retirement policy but this was within their contractual rights.

We can well understand why the appellant feels aggrieved that the employers have sought to deprive him of valuable pension benefits which he had hoped to enjoy but the pivotal question must be whether the employers were acting within their contractual rights in relation to his contract. At this point there is really no dispute as to the background facts so that the issue remaining is essentially how these facts impinge upon the terms of the appellant's contract. This is a question of law and the respondents are right to regard it as such.

We do not consider that because the operation of a contract involves factors dependent on age this necessarily signifies that there has been a breach of an equal opportunities policy which prohibits age discrimination. Such a policy is not pursued in order to withhold recognition of the fact that employees grow old but rather to ensure that all employees, including those who differ in age, get equal opportunities to secure and enjoy the benefits of the employment. However, it is, we think, conceded even by the appellant, that the contractual imposition of an ultimate retirement age cannot itself offend against an equal opportunities policy which incorporates the prohibition of age discrimination. If an employer insists that an employee retires when he attains the maximum retirement age this can only mean that the employer is preventing him from working further because of his age. The reasons why an employer imposes a compulsory retirement age may be complex. There may indeed be positive advantages to the employee for the retirement policy may confer upon the employee the right to enjoy a pension upon arriving at a particular age. The employer may consider that beyond a certain age an employee may be less capable of doing the work. The employee may have lost enthusiasm if remaining too long in the one job. Younger people are in the organisation waiting for promotion and they may become demoralised, and even leave, if arrangements are not made to ensure that there will be occasional promotion vacancies. Moreover, employees may become entitled to more remuneration as they acquire more experience and skill. This could result in an organisation having a greater fund of experience and financial obligation than it requires and there may be a need for some younger workers at lower grades to achieve a practicable balance. These are just some of the reasons why new recruits to an organisation would accept a retirement policy and not complain about unfair discrimination if such a policy were introduced to their contracts. Indeed looking to the whole endurance of an employment contract a retirement policy may generate more opportunities for those employed than it removes. Moreover, a retirement stipulation is at the very root of a contract of employment because it defines the period over which the employee may hope to have work under the contract. It should perhaps also be noted that one would expect a retirement policy to be evolved on the basis of general organisational considerations rather than the particular circumstances of an individual employee because, of course, when the employee joins the organisation it cannot be known what that employee's situation will be in the future when the retirement date arrives.

Thus, in this case, if the appellant had been asked to retire at the age of 60 it is accepted that he could not have complained that he was being discriminated against. However, a problem arises because, as part of the retirement provisions governing the appellant's contract, flexibility in the arrangements is offered between the minimum retirement age of 55 and the maximum working age of 60. Curiously, although the matter is central to the case, we were given little information as to when the intermediate retirement provisions were first introduced to the appellant's contract, and in what form. However, we did have the terms of the respondents' letter to the appellant dated 25 July 1991 since these terms are set out in the decision of the Industrial Tribunal. Both parties seemed to accept that the terms of that letter govern the appellant's contractual right to remain in the respondents' employment between the ages of 55 and 60. Thus the appellant's contractual right to remain working after 30 September 1995 must be sought in the terms of that letter, coupled of course with the terms of the Equal Opportunities Policy, insofar as these have been expressed. It can hardly be disputed that the letter of 25 July 1991 forms an element in the respondents' retirement policy as incorporated into the appellant's contract. Two of the elements in the retirement policy are absolute and happen automatically. Thus the right to retire at the age of 55 with a pension arises when that age arrives and this of course could be seen as conferring a valuable option on the employee. The requirement to retire at the age 60 is also absolute and can be seen as protecting the interests of the employer. The terms of the letter of 25 July confer discretionary rights on both employer and employee. The fact must not be lost sight of that the employee can also benefit from the discretionary arrangements. Thus an employee who has missed the minimum retirement date need not work on for the whole period until he reaches the age of 60. Upon giving notice the employee he can secure retirement and pension benefits at any time. What else should be derived from the terms of the letter? The Industrial Tribunal accepts that the intermediate pension provisions themselves are not in conflict with the equal opportunities policy. It is only if the discretion to impose retirement before the age of 60 is operated in an inappropriate discriminatory manner that a breach of contract results. The letter therefore has to be construed to discover if it could have any content in the sense suggested by the Tribunal. In the first place it would be impossible to deprive the policy which the letter represents of all age discrimination content. The provisions of the letter only operate in regard to employees between certain ages so that, on any view, they are being exposed to a risk of early termination of employment which does not apply to younger men. Of course to that extent it is fully consistent with a retirement policy. Then perhaps it could be suggested that the intermediate policy was not intended to be operated on any general retirement policy basis dependent on age, but only on the basis of specific problems which might render it unsuitable to retain the services of a particular employee until he was aged 60. This does not fit comfortably with the terms of the letter. The letter deals specifically with problems which may arise if the employee is unable to perform the job satisfactorily. There is reference to late time keeping and levels of efficiency. It then goes on to emphasise the overriding consideration that the extension of employment beyond the minimum retirement age is at the Department's discretion and subject to regular review. Thus it is not enough that the employee maintains an acceptable level of efficiency. It was thought necessary to stipulate that over and above that the Department retains a discretion and will conduct regula

The respondents argued, in effect, that the discretion retained by the employer to impose retirement is absolute and that the reasons for compelling retirement are totally irrelevant. We do not need to decide that question in this case since in this case reasons for the retirement policy were given. Even a discretion can be attacked if it is exercised in a manner which is manifestly unreasonable. Thus, for example if, in relation to the retirement policy which we are considering, the employer decided to discriminate against a limited number of employees on the ground say of their religion, we do not doubt that serious questions about the validity of such a decision would arise. However this is not such a case. Indeed, in a sense, the respondents have here operated their policy with regard to fairness and consistency because they have treated all members of the relevant class in exactly the same manner.

If the respondents are entitled to operate a retirement policy with certain fixed age parameters without being said to be guilty of breaching an equal opportunities policy why should the position be different if, as part of the overall retirement policy, they leave room for some flexibility in its operation. If the appellant is correct, it would be very difficult to contrive a flexible retirement policy that did not offend against equal opportunity but nevertheless left room for variations in the policy, from time to time, as conditions in the organisation required it. It has to be noted that any retirement policy, if put into operation, would almost inevitably result in the retiring persons being replaced by younger persons. Moreover, if there is to be discrimination antagonistic to an equal opportunities policy the test would be objective. The question would be - does the policy deprive others of an equal opportunity because of their age? That being so the employer's motive for such discrimination would not be material. It would not matter if his motives were benevolent or otherwise. That being so the fact that the objective was to employ persons who would cost less would not be significant if in fact others were being discriminated against because of age. On the other hand if an employer were operating a retirement policy and the contract could not be construed as meaning that age considerations did not apply to such a policy then the considerations would be different. If the contract provides for the employers having an unfettered discretion to fix when the post-minimum retirement age employees should retire, then, as with any discretion , the exercise may be impugned if the manner of exercise is manifestly unreasonable. However, that is not the appellant's case. In any event the factors which emerge from the original Tribunal's view as to what prompted the change in the respondent's retiral policy seem perfectly normal in relation to such a policy. Making space for younger people and saving on wages appear to be just the general considerations one might expect to influence a retiral policy.

In the circumstances we have concluded that the appellant's contract gives the respondents a wide discretion to decide when persons who have passed the minimum retirement age should retire before reaching the age of 60, that such discretion belonging as it does to a retirement scheme, could not have been intended by the parties to it to be fettered by age considerations, and accordingly that the respondents' decision to retire the appellant on 30 September 1995 cannot be said to be a breach of the appellant's contract of employment. We shall therefore refuse the appeal and affirm the Judgement of the Employment Appeal Tribunal of 27 August 1997.