Is Your Company’s Mandatory Retirement Policy Breaking the Law?

As a business owner, you want the best performance from your employees.  Many business owners are challenged with the balancing act of retaining knowledgeable and experienced employees while also recruiting younger, newer employees.  In 2010, according to the U.S. Bureau of Labor Statistics, 55 percent of U.S. employees were older than 40.  By 2018, the 55-to 75-year-old segment of the workforce will increase by 11 million, accounting for almost a quarter of the working population.

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As baby boomers age, many businesses are forced to evaluate how to transition their aging employees, especially since statistics show that many senior citizens are choosing to remain in the workforce.[1]  Thus, for the sake of your business, you might believe that it is perfectly reasonable to enact a policy that requires an elderly employee to retire at a specific age – commonly known as “mandatory retirement.”

Mandatory retirement requires an employee to retire once the employee reaches a specified age, regardless of whether the employee wishes to continue working.  But did you know that courts consider mandatory retirement to be a violation of the law?

The Age Discrimination in Employment Act (ADEA) is intended to prevent private employers from favoring younger employees at the expense of older employees because of their age (and not because of their job abilities or job performance).  Thus, the ADEA specifically prohibits private employers from imposing mandatory retirement on employees over the age of 40, if the retirement is based on the employee’s age. Congress passed the ADEA in an effort to correct discriminatory practices by many employers based on unfair stereotypes of older workers.  For example, when compared with younger workers, older employees are commonly percieved to be less motivated, more resistant to change and more likely to experience health problems that affect their work.

The ADEA requires an employee’s choice to retire to be completely voluntary.  If the employee’s choice to retire is not voluntary, the employee could have a legal claim against his or her employer.  For instance, an employee’s acceptance of an offer of early retirement may not be legitimately “voluntary” if other alternatives offered (e.g., being fired) would leave the employee worse off.

Translation: your business should not maintain a mandatory retirement policy, nor should you even ask an employee to retire solely based on his or her age.

The ADEA provides a few exceptions to the general prohibition against age discrimination. However, these exceptions do not necessarily apply to a large number of employers.  Two specific exceptions that allow mandatory retirement include:

1. A mandatory retirement age is allowed for certain executives and high-level policymakers when particular criteria are met.  This exception applies to any employee who is:

    • At least 65 years of age;
    • Employed in a bona fide executive or high policymaking position for the two-year period immediately before retirement; and
    • Entitled to an immediate, nonforfeitable annual retirement benefit from an employer pension, profit-sharing, savings, or deferred compensation plan, or any combination of those plans, which equals in the aggregate at least $44,000 per year.

According to the Equal Employment Opportunity Commission (EEOC), 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.  Similarly, the phrase “high policymaking position” is limited to certain top level employees whose position and responsibility are such that they play a significant role in the development and implementation of corporate policy.

2. The second ADEA exception allows a mandatory retirement age if the employer can show that age is a “bona fide occupational qualification” (BFOQ).  This means that the employee’s younger age is “reasonably necessary to the    normal operation of the particular business.”

Mandatory retirement has rarely been upheld under this second exception, although courts have recognized the BFOQ defense when safety issues are involved.  Some examples include: firefighters, law enforcement officers, pilots, and air traffic controllers.

So, as an employer, do you have any other available right to dismiss an employee who will not retire?  The prohibition against mandatory retirement does not apply to an employee’s abilities or job performance – an employer is always allowed to dismiss an employee based on any of the employee’s performance problems (as long as the employer treats all employees consistently under the company’s policies and procedures).  But, the timing of an employee’s dismissal is a delicate matter.  Therefore, it is important that you team with your legal counsel to make the determination whether the employee’s dismissal is appropriate.

Make sure that you understand your responsibilities as a business owner and employer. If you have any questions, please contact Scheef & Stone.

Mark Simon is an AV rated trial attorney who has represented clients ranging from public corporations and governmental entities to small start-up businesses. He primarily focuses his practice on employment issues, including: employment discrimination, harassment, retaliation, wrongful discharge, wage-hour, non-compete agreements, non-solicitation agreements, trade secrets, ERISA and independent contractor litigation.

[1] See Patrick Purcell, CRS Report for Congress, Older Workers: Employment and Retirement Trends (2007).