The legal risks of succession planning

Andrew Secker provides guidance for employers on ensuring their employees are able to progress while avoiding discrimination claims

A recent survey suggested that half of the UK’s adult workforce is intending to work beyond retirement. More drawn to a phased process than the ‘cliff edge’ associated with the state retirement age, this change can help businesses to preserve their intellectual capital and maintain employees’ earnings as they age. 

At the same time, however, the common curse of ‘dead man’s shoes’ may pose an increasing problem for British organisations, referring to the case where an employee cannot progress until a more senior person retires or moves job.

In tackling succession planning, an important detail for employers to remember is that direct and indirect age discrimination can be objectively justified – but they must satisfy three conditions to do so. They need a legitimate aim for their actions to establish a clear connection between this aim and the actions they intend to take, and some evidence that this action is a proportionate means of achieving that aim. 

The courts have been clear that staff retention and workforce planning all fall within the legitimate aim of ‘intergenerational fairness’. So what actions could an employer consider, and what might be proportionate in practice?

Compulsory retirement

A compulsory retirement age (CRA) would give a backstop for succession purposes. But as the cases where CRAs have been objectively justified show, it is often difficult to prove that a CRA furthers the aim proportionately.

Is lack of progression, for example, actually affecting staff turnover or a firm’s recruitment pipeline? How would retirement at 65 rather than, for example, 67, encourage employees to wait until senior colleagues retire?

Introducing a CRA will therefore require a variation of terms in existing employees’ employment contracts, as well as risking dissuading applications from older job applicants.

Capped-term appointments

Capped-term appointments for key posts, as used for non-executive directors, may offer an alternative solution, but they can be difficult to carry through. On the plus side, they can be adopted to enable succession planning while still allowing senior leaders to leave with dignity. And since the expiry of the capped term would not necessarily lead to dismissal, it may be more proportionate than a CRA.

However, many people in executive roles move within 10 years, and those who do not are often home-grown talent. Therefore it could be difficult to prove that the measure is proportionate unless staff turnover is low.

Job rotation

Clauses that permit employers to move an employee sideways or to rotate a group of post-holders may provide more opportunities for those at the next layer to ‘step up’ and prevent a post-holder sitting in one role for too long. 

These would need to be part of an employee’s employment contract and set out precisely what could be changed. Employers would have to exercise the right reasonably to avoid breaching the implied term of trust and confidence. But this is only likely to be proportionate (and workable) where there is a multi-skilled workforce at the same level and locality. This allows for a stable pool of employees to be drawn from and circulated.


With older workers looking for a phased retirement, embedding flexible working may provide the best long-term solution.

BT, for example, implemented a targeted flexible working programme that was open to all, while still aimed at retaining highly valued older workers by helping them to ease into retirement. The programme included policies around wind-down (part time or job share), step-down (moving to a lower grade) and ease-down (a gradual reduction of hours or responsibilities).

This approach requires changes in workforce management and job design, and brings some distinct legal risks. Disputes could arise if the process for dealing with and agreeing phased retirements is not clear, consistent and fairly applied.

If an employer only embraces flexible working for succession planning, this risks indirectly discriminating against younger employees. They may be more likely to want flexibility in how and where they work, and not in their role or responsibilities.

Financial assistance

Around one in 10 UK employees at 40 and above are expected to live to 100, and the figure is as much as one in three for today’s newborns. A proper programme of financial and physical education will therefore be critical in helping to engage employees about the need to plan for retirement. 

Likewise, offering all employees a budget to fund training or development (even if unrelated to their role or your organisation) may help older employees to explore other options before they leave and facilitate the overall succession process. 

Indeed, without a proper workable process in place, the costs can fall on companies, fresh recruits and even the older employees themselves. 

Andrew Secker is a partner at Mills & Reeve