Chris Leitch: Planning for retirement must come from very top

ASK any chief executive and he or she would say that age has very little to do with success or leadership. But in today's fast-paced business environment, energy over wisdom or flexibility over experience is a debate that occupies many boardrooms. Are a chief executive's best achievements behind them or still to come?

Arguably, there must come a time when even the most talented must make way. But, as recent events have shown, "retiring" senior executives is not an easy business for any company or organisation.

The contracts of these execs tend to be highly detailed and complex, notice periods are generally longer, while pension contributions, bonuses, share options and salaries during the notice period can be of significant value.

Many companies also fear the loss of highly valuable knowledge and information leaving with the individual and contracts of employment become further complicated by covenants and "bolt-on" clauses to protect the business when that individual leaves.

Then the person in question may not want to go. In the past this was not a problem to employers, but the legal and cultural landscape has now changed significantly. Under changes brought in with the 2010 Equalities Act, there is no fixed retirement age. Employers now need to "justify" legally any dismissal on the grounds of retirement. If they can't, claims for discrimination are "uncapped" and could be expensive.

Retirement is normally linked to the age of the person dismissed. However, as many chief executives have proved, working beyond their 60th, 65th or even 70th birthday is not a handicap. Now, employers have to show that enforcing a normal retirement age is "a proportionate means of achieving a legitimate aim".

Just fixing a date will not be enough. There has to be a legally-justifiable rationale behind the choice. An employer may face questions about why they chose 65 over 60 or 70. What a lay person understands as "justification" may not cut it legally. For instance, in the past, it was argued that a mandatory retirement age provided a visible career path for younger employees and spurred competition among those in line for a higher office. This may no longer count in a tribunal.

Cost may be a justification and there have been previous cases where the cost of providing pension and age-related benefits have been successfully argued. Assumptions lacking an evidential base will be a very dangerous path to tread.

Employers will also have to be careful about when, how and why they start a "retirement" discussion. Abolition of the formal right of an employee to request to work beyond retirement age has dispensed with the one occasion when it would definitely appear to be legitimate for an employer to initiate a discussion about retirement plans.Critically for many in the professions, the law in relation to discrimination on retirement also applies to partnerships - members who are getting paid a share of profit may still be seen as an employee in the eyes of the tribunal.

The alternative is to manage an individual's exit on performance grounds; an undignified way out for an employee potentially of long standing and another minefield for the employer.

Senior executives faced with "retirement" may be entitled to a pension at a particular age and so have little to lose in making a claim. They may feel slighted if forced to go and may have significant support across senior levels of the business.

A claim of discrimination can significantly damage an organisation's ability to operate on a "business as usual" basis. The company may also lose the right to enforce contractual provisions designed to protect the business when a senior employee leaves if they act in breach of contract.

Ultimately, dealing with unplanned claims from senior executives is an unwanted distraction from pursuing key objectives. Failing to plan for retirement is very definitely not just an issue for employees.

• Chris Leitch is a senior associate in the employment team at Scottish law firm Tods Murray