How to Deal With Aging Employees Who Don’t Want to Retire
Alan Riddell and Kyle Van Schie
Prior to 2007,
it was commonplace for many employers to adopt mandatory retirement policies forcing employees to retire at the age of 65. These retirement policies could not be successfully challenged under the Human Rights Code because until then, the Code permitted employers to freely discriminate against employees on the basis of age as soon as they reached age 65.
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Alan Riddell
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All that dramatically changed as of December 2006 when the Ontario government amended the Human Rights Code to prohibit employers from forcing employees to retire after they had reached the age of 65. As a result of those 2006 amendments to the Code, it is now illegal to pressure an employee to retire at age 65 or at any age at all. It is also prima facie illegal for Ontario employers to terminate the employment of an employee when the decision to terminate is made, at least partly, as a result of concerns about that employee’s age, or about performance problems arising from his or her age.
Across Ontario, employers are now faced with a difficult predicament, namely what to do with their aging employees who refuse to voluntarily retire and who insist on soldiering on indefinitely in their jobs, in spite of flagging abilities?
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Kyle Van Schie
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The gravity of this predicament is accentuated by the fact that many sexagenarian employees are now choosing to indefinitely postpone their retirement plans, either from financial necessity, or because they are emotionally attached to the stability and familiarity of continuing to go into work each week. The latest statistics show that for a variety of reasons, record rates of Canadians are now electing to remain in the workforce, well into their 70s and even 80s, regardless of their deteriorating physical and mental capacities.
This demographic phenomenon, combined with the 2006 amendments to the Code, has created an unprecedented and growing HR problem throughout Ontario, which did not exist 10 years ago, and which many experts predict will only get more serious over the next few years.
In determining how to deal with this growing predicament, HR staff need to tread very carefully, since any missteps in this area of the law can lead to extremely costly consequences for the employer. Moreover, the process of terminating the employment of an aging employee who does not want to retire can be so complicated that it has sometimes been described as the legal equivalent of navigating through a minefield!
Are there any situations where you can still lawfully force an aging employee to retire?
Despite the recent amendments to the Code eliminating the right of Ontario employers to force their employees into retirement once they reach the age of 65, there still remain two, very limited, situations where mandatory retirement continues to be legally permissible.
The first of these situations is where an employer can prove that age is a bona fide occupational requirement for the job, in that the occupation itself, by its very nature, requires exceptional physical and/or mental powers or reflexes, at a level which far surpasses the abilities of most older people and where trying to accommodate those older employees is impossible, as it would put the public safety at risk.
Under existing legislation, mandatory retirement policies have been upheld on this basis in cases involving firefighters, police officers, school bus drivers and other employees whose occupations are physically demanding and are essential to maintaining public safety.
The second very limited situation where an employee can still be lawfully forced to retire or be terminated is where the deterioration in his or her physical or mental abilities is irreversible, and is so serious that he or she is no longer able to carry out the core functions of his or her job, even with reasonable accommodation by the employer. In that situation, the law permits the employee to be forcibly retired or terminated because it recognizes that continued employment would create “undue hardship” for his or her employer.
As the Supreme Court of Canada stated in Hydro-Québec v Syndicat section locale 2000, when the characteristics of the employee’s condition are such that the proper operation of the business, despite all accommodations, continues to be excessively hampered, the employer may terminate his employment. The employer’s duty to accommodate the employee’s deteriorating performance ceases when the employee is no longer able to fulfil most of the basic obligations associated with his job.
In practice, this probably means that no employer can terminate the employment of an aging employee, on account of his declining abilities or productivity, unless the decline reaches the point that the employee is completely unable to carry out the core functions of his job, either physically or as a result of the onset of senility. Until that extreme situation arises, terminating the employee for age-related performance problems would likely constitute an illegal breach of the Code.
What other options do you have for purging your workforce of aging and highly problematic employees?
Accordingly, in the vast majority of situations, forcing an employee to retire is now illegal under the Human Rights Code, and can result in an Order from the Human Rights Tribunal ordering that you reinstate the employee to his or her position, with full backpay.
Faced with this new and unpleasant reality, employers have two remaining options for dealing with elderly employees whose continued employment is problematic. They may either:
(i) induce the employee to retire voluntarily, by means of financial incentives or (ii) provide the employee with reasonable working notice of termination. Both of these options are fraught with risk and can easily backfire on the employer. Accordingly, the successful implementation of both options requires considerable planning, finesse and caution.
Inducing older employees to retire voluntarily:
Although mandatory retirement policies may now be illegal, voluntary retirement programs and packages are not. In the wake of the 2006 amendments to the Code, it is still lawful for employers to induce employees to retire voluntarily when they reach a certain specified age, so long as such retirement programs are not mandatory and so long as financial incentives, rather than coercion, are used to persuade the employee to retire of their own free will.
In implementing these voluntary retirement programs, employers must be careful not to exert undue pressure on the employee to accept the retirement incentive or package. Providing the employee with information about age-related retirement incentives is not discriminatory. However, pressuring the employee to accept those incentives or package is tantamount, in law, to forcing him or her to retire, and therefore constitutes just as much a breach of the Code as any mandatory retirement policy.
In order to stay on the right side of the law, Ontario employers must exercise caution when choosing what to say to employees when presenting them with a voluntary, age-related retirement package.
In discussing the package with the employee, they must take care to avoid any implicit suggestion of coercion, which might subsequently cause the employee’s acceptance of the package to appear to a court or tribunal, as having been anything less than completely “voluntary.” This is because the Human Rights Tribunal often takes an extreme, and extraordinarily broad, view of what constitutes coercion by an employer. In Deane v Ontario, the Tribunal ruled that the employer had violated the Code when its manager, in discussing the retirement package with the employee, commented that “she would be ‘foolish’ not to retire and to accept such a generous early retirement offer.
When presenting an aging employee with a voluntary retirement package, a prudent employer, who wishes to minimize the risk of triggering a Human Rights Complaint, should take some, or all, of the following precautions:
It should ensure that discussions about the retirement package are initiated by someone other than the employee’s immediate supervisor;
It should make it clear to the employee that he or she is completely free to accept or reject the proposed retirement package, and that rejection of the package will not put his or her continued employment at risk;
Ideally, it should make the retirement package available to all staff, rather than limit it solely to the aging employee whom the employer would like to see immediately retire; and
Above all, it should ensure that the retirement package includes a release agreement, releasing the employer from all potential Human Rights claims, which the employee must sign as a condition to obtaining the retirement funds.
As an added precaution, some organizations have successfully reduced the risk of litigation arising from voluntary retirement packages by implementing a form of “retiree on-call” program, whereby the retiree continues to perform services for the employer on a part-time or ‘as-needed’ basis. Such programs help retirees to adjust to the difficult transition from full time work to full retirement. They can also be useful to employers by providing them with continued access to the retirees’ accumulated expertise and experience.
Giving reasonable working notice of termination
Another method of lawfully eliminating problematic employees, other than by inducing them to accept a voluntary retirement package, is to terminate their employment on grounds which are genuinely unrelated to their age. This can be a difficult and delicate exercise for an employer to undertake because if the termination is to be legal, it must be for reasons which not only have absolutely nothing to do with age, but which also have nothing to do with age-related performance problems or with declining productivity arising from age. Under the Ontario Human Rights Code it is prima facie just as illegal to terminate someone’s employment for work performance problems which are age-related as it is to explicitly terminate them on account of their age.
In order to reduce the risk of being subjected to an age-related Human Rights Complaint, and being dragged into legal proceedings at the Human Rights Tribunal, employers may wish to take the following precautions:
Provide generous working notice of termination: An employee who is given substantial working notice of his final day of employment, equal to or greater than what the law requires, is less likely to conclude that his termination is for age-related reasons, and to file a Human Rights Complaint;
Offer the employee continued post-termination employment, on a fixed term basis: If the employee is promised continued full-time or even part-time employment, on a fixed term contract, immediately following the termination of his indeterminate employment, he is also much less likely to file a Human Rights Complaint; and
Try to persuade the employee to formally consent to the terms of the termination: If the employee can be persuaded that the terms of termination are fair, or even generous, he or she may be willing to sign a Release releasing the employer from potential Human Rights claims.
How do you reduce the high costs and risks associated with terminating older employees?
Terminating the employment of aging employees can be very expensive, and risky.
The worst case scenario for any employer occurs when a terminated employee is able to prove that his or her termination was the result of illegal age discrimination. If the employee can establish this, the court or tribunal has the power to order the employer to reinstate the employee to his job and to pay him back pay for his lost wages between the date of his illegal termination and the date of his reinstatement. In practice, this often results in the employer having to pay the illegally dismissed employee several years’ worth of salary as well as any damages that might be awarded for injury to the employee’s dignity, feelings and self-respect.
Even if the employee is not able to establish that his termination was likely the result of illegal age discrimination, the employer may still find itself subject to a very costly claim for pay in lieu of notice. Unless your organization has a valid and enforceable termination clause in the terminated employee’s employment contract, a court will inevitably order you to pay the employee reasonable pay in lieu of notice of termination; in the case of long-serving sexagenarian employees such an order will often result in your organization being ordered to pay the employee hundreds of thousands of dollars. This is because when assessing how much pay in lieu of notice is owed to a terminated employee, the courts are required to consider the factors set out in Bardal v Globe & Mail Ltd., including the employee’s age, length of service, and future employment prospects. In the case of any sexagenarian employee, who has limited prospects for reemployment, and who has been employed with your organization for many years, any application of these factors effectively requires the courts to award notice periods of up to 24 months’ salary and benefits.
The fact that an employee is in his sixties and is therefore approaching the end of his working career does not reduce the pay in lieu of notice which your organization will be required to pay. Last year, in Arnone v Best Theratronics Ltd., the Court of Appeal forbade lower courts, when assessing notice, from using a “bridging approach” to limit employee notice to the employee’s likely age of retirement.
For these reasons, a prudent employer who wishes to avoid having to pay out 24 months of salary and benefits coverage when it ultimately terminates its older and longer serving employees, should try to ensure that all its employees, young and old, sign written employment contracts containing valid termination clauses limiting how much notice must be provided to them on termination. Without such a termination clause, terminating the employment of older and long-serving employees, even for non-discriminatory reasons, will be very costly.
When dealing with aging employees, each organization must develop an approach which is customized to its own particular needs and circumstances. In some cases, terminating such employees may be the less risky and expensive than offering them a creative retirement package, and in other cases, the opposite holds true.
Neither of these two options will be entirely free of significant risk and cost for any organization, and the success of each will depend very much on the care and foresight with which it is implemented. For that reason, before your organization decides on what approach to use in its dealings with an aging employee who is reluctant to retire, it would do well to consult with a lawyer who has extensive experience and expertise in dealing with such matters.
Alan Riddell and Kyle Van Schie are Ottawa lawyers who specialize in labour and employment law and who work at the law firm of Soloway Wright LLP.
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