In the important case of Palacios v Cortefiel Servicios SA, the ECJ has held that the EU Equal Treatment Framework Directive does not prohibit member states from introducing mandatory retirement ages.

The UK's age discrimination legislation, which allows compulsory retirement over 65, subject to a special procedure under which the employer must invite the employee to apply to remain in employment, is currently being challenged in Europe by Heyday, a group championing the rights of older workers.

Juliet Carp, an employment solicitor with Speechly Bircham LLP says: "At first sight, the ECJ's decision seems likely to disappoint older workers - and delight many employers.

"Although the judges in Palacios made it clear that a wide discretion is offered to member states, it is still possible that the ECJ might not accept the British policy objectives as a legitimate excuse for age discrimination."

The ECJ upheld the Spanish legislation which allows collective agreements enabling employers to compulsorily retire their employees at 65 to promote better access to employment across the generations. Mr Palacios de la Villa had challenged the Spanish rules on the basis that the Spanish legislation breached an EC directive prohibiting age discrimination.

However, the ECJ decided that Mr Palacios was wrong. While the court accepted that the Spanish compulsory retirement laws were discriminatory on grounds of age, it allowed the legislation to be "justified" on the grounds that it was for the purpose of a legitimate social policy, ie for the promotion of employment.

While many see the decision as a serious blow to the Heyday challenge, Carp points out that the justification for age discrimination allowed by the European Court in Palacios does not apply here.

She says: "A policy of using compulsory retirement to promote employment was expressed clearly by the Spanish Government. The purpose of the British compulsory retirement procedures is set out in guidance notes issued by the government - to allow workforce planning and avoid adverse impact on pensions and other benefits - different reasons to those given by the Spanish Government.

"When the ECJ comes to decide on the UK challenge, it will take the Palacios decision into account but it doesn't have to follow that decision. However, it seems likely to me that it will come to a similar conclusion that imposing a compulsory retirement age is discriminatory but that the UK's justifications are also acceptable."