Can You Make Retirement Mandatory?

by Renee Mielnicki, Esquire

retirement3I have had a lot of employers ask me lately if they can make retirement mandatory so I thought it would be a good time to write a blog about the subject. The answer is . . . it depends. Any time we talk about forcing retirement on an employee, the first employment law that should come to mind is the Age Discrimination in Employment Act (ADEA). Why? Because this law states that for any employer with 20 or more employees, it is illegal to discriminate based upon age. The magic age that gets an employee protection under this federal law is age 40. So any employee age 40+ cannot be discriminated against based upon age. Forcing retirement on an employee who does not want to retire, unless a limited exception applies, would be discriminatory and could easily result in a lawsuit based on age. Please note that even if you have less than 20 employees, there may be a state law that makes it illegal to discriminate against employees based on age if you have less than 20 employees. For instance, in Pennsylvania, we have the Pennsylvania Human Relations Act that applies if you have only 4 employees and makes discrimination based upon age illegal, so always check your state law. For purposes of today’s blog though, we will be focusing only on compliance with the ADEA, which is a federal law.

In certain circumstances, the ADEA will allow employers to make retirement mandatory without being accused of age discrimination, but the exceptions are very limited. The first exception to mandatory retirement works like this: the employee (1) must be at least 65 years old; (2) be either a bona fide executive or a high policy maker for tretirement6he two years immediately preceding retirement; and (3) must be entitled to an immediate nonforfeitable annual retirement benefit from a pension, profit-sharing, savings or deferred compensation plan (or a combination of the plans) from the employer which equals $44,000 or more.

So how would you mandate retirement for an employee who is 65+ and is either a bona fide executive or high policy maker? Let’s first look at what those terms mean. In general terms, a bona fide executive is an employee who meets the criteria of the executive exemption under the Fair Labor Standards Act and the criteria specified in the examples in the Conference Committee Report on the Age Discrimination in Employment Act Amendments of 1978. The Equal Employment Opportunity Commission (EEOC) simplified this definition by saying that this exception applies only to top-level employees who exercise substantial executive authority over a significant number of employees and a large volume of business. Therefore, middle management employees are not covered under this exception.

retirement1The high policy making exemption applies to certain top-level employees who are not bona fide executive employees but who play a significant role in developing and recommending corporate policy (such as the chief economist or chief research scientist of a company). Factors that may be persuasive are if the employee had direct access to top decision makers, was responsible for evaluating significant legislative and regulatory trends, worked with legislators on the issues, and recommended policy on areas of importance (acquisitions, mergers and capitalization).

There is one other very limited exception and that is the safe harbor provisions allowing public employers to impose age restrictions on firefighters and law enforcement. This is allowed as long as certain conditions are met. Similarly, the ADEA recognizes as a defense to an age discrimination claim where the employer can show that the use of age is reasonably necessary to the normal operation of its business. This defense is known as the Bona Fide Occupational Qualification (“BFOQ”) defense. Simply put, in rare circumstances an employer may be able to show that age restrictions are necessary for some business-related reason. However, this defense rarely holds up unless perhaps it is tied to a safety-related reason such as for a police officer or a pilot, so it’s not usually recommended.

retirement5Forcing retirement on any employee that does not fit within the criteria set forth above would be discrimination under the ADEA. Translation? Unless an exception applies, the ADEA requires that retirement be a voluntary choice by the employee (which, by the way, does not mean telling your employee “take this retirement package or you’re fired.”… That doesn’t work).

So what might your other options be as an employer to terminate an older employee that will not violate the ADEA? Well, there are several. Any employee can be disciplined for violating company policy or placed on a performance improvement plan that ultimately results in termination as long as you are applying the same standards to all other employees consistently. I’ve also counseled employers regularly on how to handle older workers who are no longer physically fit for duty by recommending, in some circumstances where appropriate, requiring a medical exam to make sure they are still capable of performing the essential functions of the job and in a way that will not result in an injury to themselves or other employees. Lastly, when reductions in force are happening, you can, if you plan and execute it strategically, offer voluntary retirement packages to employees over a certain age. This last one I do not recommend without speaking to an employment lawyer first because it must be handled appropriately to remain “voluntary” or you will find yourself being involved in an age discrimination claim. Generally, these types of programs must not only be voluntary, but they should also be coupled with incentives to entice the employee to retire and be set forth within a severance agreement where the employee is asked to release of all employment-related claims, including those under the ADEA.

retirement7My last piece of advice to reduce the risk of an age-related claim from an employee at or near retirement age is this: never, ever, under any circumstances ask your employee when they will be retiring. Always let the employee be the one to initiate retirement discussions. Why? Because if you do end up terminating employment after you asked an employee when they will retire, whether the termination was for performance, discipline or a reduction in workforce, the first piece of evidence they will use against you in their age-based lawsuit is your line of questioning about their retirement. So don’t do it! The only time you should engage in these type of conversations with your employees is where they initiate it and then you can follow-up asking for an estimated date of retirement so you can create a succession plan when they leave. Otherwise, stay away from retirement conversations entirely. Trust me…

If you have questions about retirement conversations, terminations, or any other HR issues, contact us at hrhelpline@eastcoastrm.com. If you’d like email notification of all blog updates, you can subscribe by typing your email address into the box to the right and hitting the “subscribe” button.

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