Dismissing Employees at 65 in Ontario

By Yosie Saint-Cyr, Editor at HRinfodesk---Canadian Payroll and Employment Law, June 2004

What is the mandatory retirement issue?

The mandatory retirement issue has recently come into focus in Ontario. The reason? The provincial government’s commitment to ban mandatory retirement by drafting legislation that would reverse workplace policies and collective agreements that are currently seen as discriminatory against older workers, because they allow businesses and unions to force them to leave their jobs when they turn 65. On April 27 2004, the Ontario government said they will hold discussions with Ontarians this summer to find out what concerns or issues there might be with the change. After that legislation would be introduced.

Before starting the discussion, it is important to note that mandatory retirement is not a law or regulation imposed by the government. Rather, it is part of a practice or collective agreement that requires an employee to retire from an organization at some fixed age—typically 65—and is usually a stipulation of the company’s pension plan and/or workplace policy. This same practice or collective agreement has been confirmed by the courts on several occasions.

As indicated by a 2004 brief by the C.D. Howe Institute (Banning Mandatory Retirement: Throwing Out the Baby with the Bathwater, by Morley Gunderson), approximately half of the Canadian workforce is engaged in jobs that have mandatory retirement provisions. This does not mean that half of the Canadian workforce will retire because of the policy—only that they work in jobs that are subject to mandatory retirement. Many may leave their job before their retirement date, whether they quit, are fired, retire early or die. Others may continue with the same employer under a different contractual agreement, work for another employer, or become self-employed. Of those who are retired, 12 percent reported they did so because it was mandated.

The report and best business practices state that mandatory retirement exists to open jobs and promotion opportunities for younger workers, it can help in succession planning and the costing of pensions, disability and health plans on the part of employees. It may facilitate retiring with dignity and reduce the need for more constant monitoring and evaluation and, possibly, the ultimate dismissal of older employees. It may also facilitate the prevalence of private and public pension systems as an integral part of mandatory retirement. What’s more, it can defer compensation in long-term contractual relations with organizations, where individuals are underpaid when younger in return for being overpaid when older.

In certain rare cases, the courts have determined that age may well be a "bona fide occupational requirement" requiring having a mandatory retirement policy. These usually involve safety-sensitive positions that require enormous physical exertion. Nonetheless, certain industry and sectors are able to justify a mandatory retirement age.

This article discusses how employers in Ontario currently deal with retirement issues and the dismissal of employees at age 65, and how employers would have to deal with retirement issues if new legislation to ban mandatory retirement is enacted.

How employers currently deal with retirement issues and dismiss employees at age 65

No law in Ontario requires mandatory retirement at a certain age. However, in Ontario, current human rights legislation protects workers between the ages of 18 to 65 from discrimination on the basis of age. That is partly why it is legal in Ontario for employers to retire an employee at age 65 or over as long as they have clear and well communicated retirement policies and practices. Generally, employers have retirement policies and practices when they offer employees pension or benefit plans. Employers without such plans will not have retirement policies and/or practices in place, leaving them exposed to additional costs or confusion when employees reach retirement age.

Currently, under the Employment Standards Act (specifically under regulation 288/01) a notice of termination or pay in lieu of notice is not required where an employee has reached the age of retirement, according to the employer’s established policy or practice. Also, employees will not be entitled to severance pay provision if they are entitled to an employers unreduced pension plan benefit. Employers without a pension plan benefit will be liable for the severance payment if severance pay provisions apply to the employee. Thus, having a mandatory retirement policy allows an employer to retire an employee who has reached retirement age without notice of termination or termination pay in lieu of notice, and severance depends on the existence of a pension plan and the employee’s eligibility to severance pay under the Act.

However, unless an employer has clearly communicated and consistently applied mandatory retirement policy or practices, an employee forced to retire at age 65 must be provided with ESA reasonable notice and/or severance pay (when applicable and there is no pension plan in place).

It should be noted that Group RRSPs and CPP benefit entitlements are not considered pension plans for the purpose of severance pay entitlement.

An employee forced to retire at age 65 can bring a wrongful dismissal claim or grievance (if in a unionized workplace) when the workplace is absent of such policy or practice or the collective agreement does not make reference to a right to retire. In order to avoid such legal exposure, employers must have an explicit and written retirement policy that is consistently applied.

Assuming an employer considers age 65 as normal retirement age, this should be noted in an established mandatory retirement policy. The policy should also clearly state the age at which mandatory retirement is required and when the retirement will take effect. Employees should be instructed to contact the Human Resources or payroll department to discuss any other options or benefits that may be available to them and to ensure employees they understand and know their entitlements upon retirement. Retirement policies should include the details of any retirement premiums or bonuses for retiring employees, long services recognitions, or any payout of sick bank benefits, long term disability insurance, pensions, and continual group life health and benefits plans, as well as any severance entitlement if there is no pension plan.

Even with a policy, employers should confirm that employees will be required to retire at age 65. It is appropriate to give this reminder notice at least a year in advance prior to the employee’s 65th birthday.

How employers would have to deal with retirement issues if new legislation to ban mandatory retirement is enacted

Provinces like Manitoba and Quebec have banned mandatory retirement under all circumstances unless there is a bona fide occupational requirement. Alberta, New Brunswick, Nova Scotia, Prince Edward Island and the Federal governments have removed the age cap while exempting bone fide retirement or pension plans; British Columbia. Saskatchewan, Ontario and Newfoundland and Labrador maintain the age cap of 65 in their human rights codes to accommodate mandatory retirement, as long as it is applied uniformly to all employees.

So far, studies have indicated that legislative bans on mandatory retirement such as in Manitoba and Quebec have not had any significant impact on the employment or retirement decisions of older workers. However, the C.D. Howe Institute indicates that although there is no direct evidence, banning mandatory retirement could have an impact on a wide range of personnel and human resource practices. “In essence, if mandatory retirement is an integral part of the employment contract, serving various purposes, removing that one part could be expected to have an effect on other aspects.” The C.D. Howe report has raised the following concerns and situations employers in Ontario may face if new legislation to ban mandatory retirement is enacted.

Dismissals, lateral promotions and possible demotions of older workers may become more prominent because of a lack of clarity about how long older workers will remain with the organization.

Monitoring and evaluating older workers may also become more prominent, partly to protect against unjust dismissal and age discrimination cases.

Deferred compensation could be less prominent, as with its associated benefits. Until the deferred compensation profiles adjust, older workers could receive windfall gains associated with the fact that any wages excess of their productivity will continue until they retire.

Increased age discrimination charges because of the decline or slower growth of wages of older workers.

Retirement buyouts should become more prominent, possible leading to bad incentives for employees to reduce their productivity and performance to enhance the buyout if its size were to be equal to their expected future wages minus their expected productivity.

* Employers may purposely assign older workers to more onerous tasks to encourage them to leave.

* Both private and public pension plans may become less generous if employees can potentially continue working.

In addition, banning mandatory retirement while exempting it in circumstances where a bona fide occupational requirement exists has been difficult to prove in such provinces as Manitoba and Quebec. Generally the practice is restricted to situations where public safety is involved such as with airline pilots, police, and firefighters; so far, even in these jobs, the requirement has been contested successfully in court.

The reality according to the latest Statistics Canada retirement study is that most employees want to retire early and not work after age 65. It is unlikely that much will change in the average workplace. The abolition of mandatory retirement is a reflection of the life span of workers. When age 65 was picked, the average lifespan in Europe and North America was age 65 or less! Given that Canadian employees now have a reasonable expectation of living beyond 80 and having good health beyond 70, it is not surprising that many of them want to contribute to the workforce.

Suffice it to say, when the ban on mandatory retirement is enacted that removes any barriers that discourage flexible retirement practices, employers in Ontario wanting to implement mandatory retirement policies will be required to demonstrate that their policy is based on bona fide occupation requirement that prevents an employee from performing their work after a specific age.

According to Neena Gupta, a lawyer at Goodman and Carr, some advance planning is in order:

* Performance management. Some employers choose not to manage the performance of older employees, on the theory that these employees will retire shortly. Many employers prefer to allow an older employee with performance issues to retire “in dignity” without performance improvement plans or warnings. Once mandatory retirement is abolished, all employees, regardless of age, should be managed on an equal footing. Employers can no longer anticipate resolving performance issues by way of forced retirement.

* Accommodation. Employers should expect that requests for accommodation will increase as the working population ages. Employers should review their accommodation policy. If an older employer can no longer handle the physical or mental demands of a position due to age-related infirmity, the employer is obliged to accommodate the employee up to the point of undue hardship. Once accommodated, however, the employee must be able to perform the essential duties of his or her position up to a reasonably acceptable standard.

* Short-term and long-term disability benefits. Review any long-term disability (LTD) policies with your benefit carrier. At present, most benefit carriers end LTD benefits when the employee reaches age 65. Determine how your benefit carrier proposes to deal with the abolition of mandatory retirement in Ontario. In Manitoba, for example, the Manitoba Human Rights Commission has declared that it would not be discriminatory to terminate long-term disability benefits at age 65, unless there is a reasonable expectation that the employee will recover and return to work.

* Life Insurance benefits. Some life insurance coverage ends at age 65, while others cover active employees to age 70. Premium costs vary considerably from company to company. Discuss with your benefit carrier how to handle coverage issues for employees who are over 65. Depending on the demographic of your workforce, you may experience an increase in cost for such benefits.

* Medical, dental and prescription drug coverage. Depending on the age of the employee (and his/her dependants), there may be a shift in benefit costs. Some or all of the cost increase may be absorbed by the Ontario Drug Benefit Plan (ODBP), which defrays the cost of many medications for senior citizens. Note that out-of-country coverage for individuals over 65 can be very expensive. It may be necessary to consider whether this benefit ought to be limited to employees who are obliged to travel out of Canada on business, while they travel on business.

Does mandatory retirement make any sense?

In certain cases, the courts have determined that age may well be a "bona fide occupational requirement." These types of jobs are rare. They usually involve safety-sensitive positions that involve great physical exertion. Nonetheless, your industry may be able to justify a mandatory retirement age. If so, start working on that case now. Find out how the industry has dealt with these issues in jurisdictions where mandatory retirement has been abolished for many years, e.g. Alberta, Manitoba, P.E.I., Newfoundland and Labrador. Work with your industry organization to present a common front in legislative hearings and/or judicial challenges.

Flexible retirement

Some employees may wish to phase-in retirement. Consider whether a flexible retirement policy would work in your workplace and how that might impact on benefits such as supplemental health and/or pension plans.

Workplace Safety and Insurance

It is unclear what the WSIB will do in response to the abolition of mandatory retirement. Many benefits are limited to age 65. Many blue-collar workplaces are concerned regarding the rising costs of coverage. Losses due to workplace injury tend to rise with age. Keep the issue of WSIB in your radar screen. You may wish to consider introducing fitness programs to help all workers to reduce their exposure to injury. Both repetitive-stress and back injuries can be reduced with proper exercise and stretching.

The CD Howe report in PDF format can be accessed here.

By Yosie Saint-Cyr, Editor at HRinfodesk

Published on HRinfodesk---Canadian Payroll and Employment Law

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