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British companies are within their rights in imposing a compulsory retirement age on their workers, Europe's top court has said.

The European court of justice said it was up to the UK courts to decide whether dismissing employees without redundancy payments at 65 or a mandatory retirement age was lawful.

But the policy definitely does not breach the European Union's own equal treatment rules, the court said.

"This kind of difference of treatment on grounds of age is justified if it is a proportionate means to achieve a legitimate social policy objective related to employment policy, the labour market or vocational training," it said in a statement.

Age Concern, whose membership organisation Heyday had launched the action at the ECJ, said it would now take its case to the high court in London.

Mike Emmott, Chartered Institute of Personnel and Development (CIPD) employee relations adviser, said the ruling will disappoint many older workers: "Compulsory retirement ages can leave organisations blindly waving goodbye to valuable skills and experience.

"They can lead to lazy management of workers for many years as older employees are filed by their managers under the 'soon to retire' category."

However, the ruling has left campaigners optimistic about their chances for overturning the policy in the British courts.

Gordon Lishman, director general of Age Concern, said: "The ECJ has said the Government must prove to a high standard why forced retirement ages are needed, and those reasons must be based on social or labour market needs, not the interests of employers."

Paul Cann, director of policy and external relations for Help the Aged, said: "Challenging financial circumstances mean it is even more important for older workers to be able to choose to work for longer if they want to. Ageism in all its forms must be eradicated from our society once and for all."