Judges sitting in the highest appellate court in the land have rejected an appeal by a lawyer who claims that he was forced to retire at 65.
The ruling paves the way for businesses to justify compulsory retirement for older employees based on specific grounds.
In what has been described as the most significant age-discrimination case for years, the Supreme Court upheld the decision of Clarkson, Wright and Jakes law firm to retire one of its partners, Leslie Seldon.
The firm said its partnership agreement with Mr Seldon was specifically drafted to allow it to plan for succession when the time was right. The firm was keen to avoid the situation where they could not bring in a new partner because they were waiting for an older partner to voluntarily retire or even die.
This landmark judgment will be welcomed by businesses looking at whether they can set retirement ages for their staff. Although youth unemployment is rising, more and more older workers are looking to continue employment due to shortfalls in their pension plans.
The issue of retirement has been on the agenda since the abolition of the default retirement ages on 1 October last year. Since then businesses have been unable to make workers retire at age 65 if the only reason for doing so was their age.
The Supreme Court ruling states that the firm in this case was entitled to set its own retirement age, because in doing so they were seeking to give greater opportunity to younger solicitors and to avoid the need to force older partners out through performance review.
Steve Martin is employment partner at law firm Allen & Overy.
"These cases are not a green light to operate a blanket compulsory retirement policy but show that such a policy may be capable of justification if challenged," he said.
Employment lawyers say that the ruling does not give businesses the right to force retirement at 65 in all cases. Rather, it allows them to put in place retirement proposals which stand a chance of being supported in law if they are driven by a genuine business plan.
Neil Carberry is the director for employment and skills at the CBI employers group.
"If employers want to set a retirement age that is suitable for their workforce and know for sure whether it is legitimate, they will still have to go through a costly and lengthy legal process."
Read more on the story (Financial Times - free sign up)
Can my employer force me to retire? (FindLaw)
Find an employment solicitor near you (FindLaw)