Legal Clinic

Mandatory Retirement Incentive Programs We are considering instituting a mandatory retirement incentive program at our company, but don't want to run afoul of the law in doing so. Can you please explain who we are permitted to include in a mandatory retirement program and who has to be excluded? We are in New York state.

Monday, December 30, 2013
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Answer: The Age Discrimination in Employment Act prohibits age discrimination against any employee who is 40 years of age or older, and as a result, it generally prohibits involuntary retirement. 29 U.S.C. §§ 623 et seq. This does not amount, however, to an absolute ban on mandatory retirement programs. An employer may require the retirement of an employee who is 65 years of age or older and who, for the two years preceding retirement, is employed "in a bona fide executive or a high policymaking position." If the retiring employee is eligible for an immediate, non-forfeitable annual retirement benefit from a pension, profit-sharing, saving or deferred compensation plan, or any combination of such plans, the aggregate retirement benefit must amount to at least $44,000.  Id. New York state and New York City provide for virtually identical exemptions from state and city age discrimination laws.

I.              Who is a "bona fide executive"?

            The age, timing and retirement benefit elements of the exemption are fairly straightforward.  The difficult question is who exactly qualifies as a "bona fide executive or high policymaker."  The Equal Employment Opportunity Commission has provided some useful guidance in this area. To qualify as a "bona fide executive," an employer must demonstrate that the employee:

*   manages the company or organization or a subdivision of the company or organization;

*   directs the work of at least two other employees;

*   has the authority to hire or terminate other employees or has significant influence in such decisions;

*   has and uses discretionary authorities; and

*   spends no more than 20 percent of his or her work time on activities unrelated to the activities required herein (40 percent for retail or service companies).

If the retiring employee is the sole manager of an independent establishment or a physically separate branch of a larger establishment, or if the retiring employee owns at least 20 percent of the company by which he or she is employed, the final requirement regarding how he or she spends working time will not apply. EEOC Directives Transmittal on the EEOC Compliance Manual, No. 915.003, Chapter 2: Threshold Issues, Section 2-III(A)(6), ADEA Exemptions, available here (last visited Dec. 13, 2013).

A close analysis of each employee's job functions is necessary to determine if this exemption applies.   Generally only top-level employees with significant authority over large portions of a business will qualify.  29 C.F.R. § 1625.12(d)(2).  For example, an employer's policy of requiring employees with certain titles and pay grades to retire at age 65 was lawful with regard to the plaintiff, a senior vice president and member of the company's board of directors. Wendt v. N.Y. Life Ins. Co., No. 94 Civ. 6132 (DAB), 1998 WL 118168, at *8 (S.D.N.Y. Mar. 16, 1998).  Middle management employees will not usually be covered by the exemption. 29 C.F.R. § 1625.12(d)(2).

II.            Who is a "high policymaker"?

The EEOC provided additional guidance regarding "high policymakers." An employee is a "high policymaking" employee if he or she is not a "bona fide executive" but nonetheless plays "a significant role in the development of corporate policy and effectively recommend the implementation thereof." 29 C.F.R. 1625.12(e).

Once again, it is necessary to conduct a close analysis of each employee's actual job functions to determine whether he or she is a "high policymaker." For example, where the executive vice president for corporate affairs at a bank was required to retire at age 65, a federal appellate court held that his mandatory retirement was lawful because he was a "high policymaker." Morrissey v. Boston Five Cents Sav. Bank, 54 F.3d 27, 32 (1st Cir. 1995). The court reached this conclusion in light of evidence that the retiring employee reported directly to the CEO of the bank, attended weekly meetings with senior officers, recommended compliance policies and legal counsel for the bank, and coordinated certain bank policies.  Id.

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In contrast, a federal district court concluded that the required retirement of a company's chief labor counsel at age 65 was unlawful. Whittlesey v. Union Carbide Corp., 567 F. Supp. 1320, 1321-28 (S.D.N.Y. 1983), aff'd, 742 F.2d 724 (2d Cir. 1984). There, the court concluded that the employee at issue did not qualify for either the bona fide executive or the high policymaker exemption because he was far removed from the head of the legal department and had virtually no access to the high policymaking levels of management.  Id.

III.                What if the employee is neither a "bona fide executive" nor a "high policymaker"?

The ADEA does not prohibit willing employees from agreeing to retire or from volunteering to retire as soon as they are eligible to do so. Employees may agree, through an employment contract, to retire at a specific time in the future and, with a legally sufficient waiver, they may waive any ADEA claims related to the promise to retire.  29 C.F.R. 1625.22(c)(2). Absent such an agreement, an employer may offer voluntary early retirement incentive programs. To be lawful under the ADEA, an early retirement incentive must be (1) voluntary and (2) consistent with the purposes of the ADEA.  29 U.S.C. § 623(f)(2)(B)(ii).  Employers may set a minimum age at which employees are eligible to participate, but they may not set a maximum age or decrease eligibility or the amount of benefits for older employees as compared with younger employees. A federal appellate court struck down an early retirement incentive program that was only eligible to employees who were 65 years of age or younger as violative of the ADEA. Jankovitz v. Des Moines Indep. Cmty., 421 F.3d 649, 654 (8th Cir. 2005). 

Keisha-Ann G. Gray is a partner in the labor and employment law department of Proskauer in New York and co-chair of the department's employment litigation and arbitration practice group. Proskauer Associate Laura Deck assisted with this article.

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