The Elimination of Mandatory Retirement: Its Impact

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On December 12, 2006, the Ontario Government passed legislation eliminating age 65 as the age of mandatory retirement. As a result, employers with employees at or approaching age 65 years are faced with the continuing prospect of making adjustments and planning for the employment of an aging workforce.

With the elimination of mandatory retirement at age 65, employers are now faced with the fact that workers compensation insurance does not cover those over age 65 who suffer workplace injury or illness. It is therefore incumbent upon employers to ensure that appropriate and separate insurance is in place for those employees who are 66 years of age or older. An employer should also review its insurance policies in order to ensure they will provide coverage to employees beyond the age of 65. In many cases, policies exclude coverage for employees who are beyond age 65.

An employer must now also be concerned with Section 5.1 of the Ontario Human Rights Code (the Code), which guarantee equal treatment with respect to employment without discrimination on the grounds of age. With the removal of mandatory retirement, the employer is faced with potentially much higher payouts in the event of termination of employment of an older employee. Pursuant to the Code, an employee cannot be terminated simply because he or she is 65 years of age, unless the employee is an airline pilot or fighter pilot, or is engaged in some other occupation where the level of performance is justifiably linked to age. Policy grounds may justify mandatory retirement at age 65 in certain other occupations or professions, such as university professors and doctors.

Strategies for Employers

Depending upon the corporate structure and the type of business endeavour, there are advantages and disadvantages associated with an arbitrary retirement age of 65. It is definitely beneficial to having an older, experienced employee, and indeed, given certain skill shortages, some sectors may have no choice but to continue to employ individuals beyond the age of 65. However, an employer must be concerned with the potentially high cost of terminating an employee of age 65 years or older, especially if that employee has been a long service employee (20 years of more). The reasonable severance expectations of such an employee could equal 24 months wages, including bonus and benefits, notwithstanding the receipt of pension benefits to which he or she would additionally be entitled.

In light of the potential for increased costs for severances, increased diligence is now required in the performance management process and an increased requirement to manage disability and insurance issues. This necessitates that an employer survey the landscape with respect to senior employees, consider whether they are in a position to institute a retirement policy, institute the process by which the retirement policy will be introduced and at what stage of the employee’s tenure, whether by employment contract at the beginning of employment (preferably) or at a later stage where a “quiet settlement” might be in order, consider options to suggest to employees near retirement, such as flexible part-time or nontraditional working arrangements, while at all times assuring the employee that the options being presented do not smack of age discrimination.

Without a policy in place, an employer may consider “working notice”, which would allow the older worker to work towards his or her end of employment instead of being “packaged out”. Of course, there can be a combination of both working notice and a severance package. The latter holds some attraction to both employer and employee, the former not wanting to risk deterioration in performance, and the latter wishing to have some lump sum award to take with him or her as a bonus at the end of his/her working life.

The most important consideration is to be aware of the “65” issue so as not to be caught off-guard. An employer cannot terminate older employees who have reached the age of 65 simply because they have reached whatused to be retirement age.