Q: Can a company implement a mandatory retirement age for its employees?
A: With the Bureau of Labor Statistics expecting the number of workers over the age of 75 to grow by 96.5 percent by 2030, companies are facing unique challenges with an aging work force. To meet these challenges, some companies may consider implementing a mandatory retirement age for its employees. While there are some narrow exceptions, companies should proceed with caution, as such policies are likely to violate state and federal age discrimination laws.
Both the Age Discrimination in Employment Act of 1975 (ADEA) and the California Fair Employment and Housing Act (FEHA) protect current and prospective employees 40 years of age and older from discrimination on the basis of age. This would include compulsory retirement policies, which would be tantamount to involuntary terminations of employment. However, there are some narrow exceptions.
Bona Fide Occupational Qualification
Exemption
Both the ADEA and FEHA recognize a Bona Fide Occupational
Qualification (BFOQ) exception, wherein age materially affects an
employee's job performance. Generally, to claim a BFOQ, an
employer must demonstrate an objective safety issue. Typically,
BFOQs are seen in industries such as law enforcement, piloting, air
traffic control and other occupations with similar levels of
responsibility. Recent developments have demonstrated that this
standard can be very high.
In December 2023, Scripps Clinical Medical Group paid $6.875 million to settle an age and disability discrimination charge filed by the U.S. Equal Employment Opportunity Commission (EEOC) after it subjected a class of physicians to a mandatory retirement age, regardless of the individuals' abilities to do the job. Interestingly, while California's FEHA provides age discrimination protections similar to the ADEA, California law explicitly permits professional medical corporations to include compulsory retirement clauses in their bylaws or articles, requiring physician employees to retire at age 70 (Cal. Code Regs. Tit. 2, §11084). Nevertheless, the EEOC investigated the allegations and found reasonable cause to believe that Scripps Clinical Medical Group violated the ADEA and the Americans with Disabilities Act (ADA), thereby preempting this California law.
Bona Fide Executives or High Policymaking Employees
Exemption
Although the ADEA also creates an exemption for bona fide
executives or high policymaking employees, there are various
factors employers must establish before the exemption may
apply.
The employee must:
- Be employed as a bona fide executive or in a high policymaking position for two years immediately before retirement (The determination of whether an individual is a bona fide executive rests on the functions performed by that employee, regardless of salary.)
- Be entitled to an immediate nonforfeitable annual retirement benefit from a pension or equivalent plan that amounts to $44,000 or more.
The EEOC has set forth the following requirements for a person to be considered a bona fide executive:
- Manages the organization or a department or subdivision of the organization
- Directs the work of at least two full-time employees
- Has authority to hire or dismiss other employees, or their suggestions as to personnel decisions are given particular weight
- Customarily and regularly exercises discretionary powers
- Spends no more than 20 percent of their work time on non-exempt duties.
The EEOC also made it clear that this is a narrow exemption that does not apply to middle-management employees, only to top-level employees who exercise substantial managerial authority over a significant number of employees and a large volume of business.
In sum, employers should consult with counsel when determining whether the exemption applies. Age-based policies can be costly and companies should proceed with the utmost caution before considering any such policies.
Best Practices to Avoid Age Discrimination
Claims
Provide Discrimination and Diversity Training
Providing supervisors and hiring managers with regular training on
employment issues is always best practice. This includes training
on implicit biases and stereotypes. While most employees generally
understand that discrimination is forbidden in the workplace,
lawsuits often arise out of a series of interactions where an
offending party is not aware of the implications of their comments
and actions. Effective training will help employees understand that
unconscious biases exist and help them avoid these biases in their
decisions and interactions with others in the workplace.
Be Mindful of Reduction in Workforce Practices
When a company needs to make a reduction in the workforce,
management will often look first at the employees with the highest
salaries and wages. More often than not, these employees tend to be
the those with the most experience. In turn, those with the most
experience tend to be the older employees who have spent years
dedicated to their career. Even in the absence of intentional
discrimination, employers still may be liable for age
discrimination on a disparate impact theory. Employers should
therefore be mindful in their reduction in workforce practices,
with an eye toward avoiding unintentional discrimination against
elders in the workforce.
Maintain Thorough and Accurate Records
Thorough and accurate records are often an employer's greatest
tool to defend against claims brought by former employees. When
disciplinary or other adverse employment actions need to be taken
against an employee, it is vital that the employer makes a thorough
record of the details and reasons surrounding its actions. These
records can provide strong support that the company was engaged in
proper practices and quickly dispel claims of discriminatory
animus. On the other hand, inadequate or inconsistent record
keeping may leave an employer vulnerable to claims that the
employer's actions were pretextual or otherwise improper.
Implementing these simple practices can go a long way in
limiting a company's exposure to future claims and fostering a
positive work environment for all of its employees.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
