The appeals court said on Thursday it was OK for an NHS trust to dismiss its chief executive as he approached 50 to avoid him clocking up pensions liabilities worth up to £1m.
Nigel Woodcock was told in 2007 he would be dismissed when he reached 49, giving him a pension worth £200,000. If the trust had let him work until 50, his pension pot would have risen to between £500,000 and £1m, so bosses terminated his post.
After a three-year battle, the Court of Appeal ruled today in the employer's favour, which will pave the way for public and private sector employers to legitimately dismiss staff based on age - even though the practice is unlawful. However, the appeal court's judgement will allow employers to ignore regulations and get rid of older workers, experts said.
Companies will also find it easier to dismiss workers on long-term sick leave and to refuse to make adjustments for disabled employees wishing to work at their firm, following the appeals court judgement.
The ruling threatens to wind back employment rights several decades, according to lawyers, who argue companies now have a cost justification to retire workers based on age and other "protected" areas, such as disability.
When Mr Woodcock lost his job, he sued for age discrimination since the decision to dismiss him was based purely on age and did not follow any redundancy procedure.
But the Trust argued the dismissal was justified as saving money was a "legitimate" excuse for discriminating.
Several employers will look to use today's judgement to consider how to retire older workers in future so as to escape huge pension costs, experts said.
Employers' groups including the CBI have argued that scrapping the retirement age last year has left a gaping whole over how to manage older workers out of the business, and many companies will see today's ruling as a way to do this.
Daniel Barnett, employment lawyer at Outer Temple Chambers, said: "Some employers will be able to defend certain discrimination claims on the grounds that it is cheaper to discriminate than not to discriminate.
“This will make it easier for employers to justify cost-cutting measures on grounds of costs. The ramifications are wide ranging. For example, it will be easier for employers to refuse to make adjustments for disabled employees because of cost."
He added workplaces will return to the last-in, first-out rule over hiring workers because the cost of keeping them on the books would be too high if business orders slowed.