Introduction:

On December 12, 2006, “mandatory retirement” in Ontario will end, by amendments to the Human Rights Code that will extend the protection against “age discrimination” to individuals over the age of 65 years.  That means that policies requiring retirement at any specific age will almost without exception constitute prohibited discrimination based on age.

Background:

For decades, employers and employees have come to assume that age 65 (or in some cases less) is the expected date for retirement.  Pension plans are geared to payments after “normal retirement”, with a reduced amount available for early retirement.  Canada Pension benefits kick in at age 65 (or as early as 60, with a reduced payment), and expectations have been created that employees can expect to retire from their regular job, either to enjoy the leisure of their senior years, or to find other types of work – second careers.

In most cases, both unions and employers are on the same page here, subject to the amount being contributed to the pension plan:  the unions lobby for retirement benefits so employees can enjoy a retirement as a reward for the years of hard work.  Retirement makes room for younger employees to enter the work force.  Employers see retirement as a means of ensuring that fresh energy comes into the workplace, so that productivity can be maintained.

The changing demographic, where more people are approaching retirement age than are coming into the workforce, has created some rethinking of the old model.  Currently about 13% of Canadians are over age 65, while by 2023, that number is expected to increase to 20%.  By then (according to expected trends) there will be three workers for every retired person, whereas today the ratio is 6:1.  Many “baby-boomers” who are now in their late ‘50s are not ready or willing to retire.  Others do not see their pensions as adequate to maintain their lifestyles.  People are living longer and are maintaining good health to an older age.  The net result is a pressure to amend the traditional thinking about retirement at or before age 65, which has been seen in both federal and provincial political statements, as well as in the lobbying of Keith Norton on behalf of the Ontario Human Rights Commission.

The Myth of Mandatory Retirement

Political chatter focuses on the need to legislate an end to mandatory retirement.  In fact, in the private sector, there is no legislated requirement for retirement in Ontario.  Although many employers (with or without the consent of their employees) have established retirement policies, contracts, and collective agreements that compel retirement at a certain age, no statute requires it.  However, the Ontario Human Rights Code, which amongst other things, prohibits discrimination on the basis of age, has limited its protection to individuals under the age of 65.  In effect, therefore, it has not been not discriminatory under the Code to impose a retirement date (or otherwise discriminate by age) for those who are 65 years old or more.   That is the provision that will be changed by the legislature, effective December 12, 2006.  As a result, employers need to completely rethink mandatory retirement expectations in the workplace.

Recent Legislative History

In May, 2003, the Eves government introduced Bill 68 to amend a variety of provincial laws which establish age 65 as a retirement date.  For example, the Medical Officer of Health, or the provincial Auditor, would not have their positions ended at age 65.  Nor would certain civil servants have to leave at 65, although there has been a provision which allows annual re-appointment.  The amendment with greatest application, however, was the proposed change to the Human Rights Code, to continue the ban on age-based discrimination past 65.  By way of a transitional provision, any Collective Agreement in place (as of May 29, 2003) containing a mandatory retirement age could continue to apply up to the point of its expiry or extension.  Also, any age-based provisions for benefits under the Workplace Safety and Insurance Act would continue.  The entire Act was to come into effect on January 1, 2005, thus giving the employment community about 18 months to arrange for compliance.

Given the defeat of the Eves government, Bill 68 died on the order paper.  The McGuinty government has now passed replacement legislation which will take effect December 12, 2006. 

It is interesting to note that although some other Canadian jurisdictions do extend age discrimination protection beyond age 65, most provide exceptions for bone fide mandatory retirement plans as well as group benefit coverage.

Age Discrimination in the Post-Mandatory Retirement World

Looking ahead to the day when it will be prima facie discriminatory to require retirement at any specific age, we can predict the analysis that will be applied, since it will be the same statutory framework that currently exists for other forms of discrimination.

Any policy which will require retirement based solely on chronological age will be measured against the test of whether the policy is based on a bona fide occupational requirement (“BFOR”).  The “Meorin” test, requiring justification for the policy will be applied:  (a) was the policy adopted to address a purpose rationally connected with the job function? (b) was the policy adopted in good faith, in the genuine belief that it was needed to accomplish the stated purposes?  and (c) could the purpose have been accomplished by some other means, whereby the employee could be accommodated without undue hardship?

For most workplaces, it is hard to imagine how a mandatory retirement policy based on age alone could be justified.  There may be general trends relating to, for example, physical strength or endurance that would relate generally to age, but if so, it would be those other determinants, not just age itself, that would need to be applied.  Each person would need to be assessed on an individual basis.  In effect, mandatory retirement policies are almost guaranteed to be outlawed with the change of the Human Rights legislation.  Employers will be required to accommodate older workers to the point of “undue hardship” in their advancing years.

Employee Benefits

Employers may provide whatever benefit plans they wish for employees, unless compelled to do so by collective bargaining agreements.  Typically, benefit plans have two age-related types of coverages:  life insurance and long term disability plans.

Life insurance costs clearly rise as the insured employees age – it is an actuarially calculable risk.  As a result, some employers terminate life insurance coverage at age 65, or provide post-65 coverage at a lower level.  Although an employer would argue that its decision to provide benefits is in part governed by cost, it would be hard-pressed to deny that older workers (assuming they work past 65) are adversely affected by the reducing coverage.  As such, there would be apparent discrimination based on age, and an employer would be left to argue “undue hardship” in providing level coverage for all.  While it may still be possible, to provide reduced coverage (or none at all) to retirees, there is a strong argument for maintaining benefits available to all active employees without adjustment for age.  The cost of the revised coverage may well be something that the employer is not prepared to bear, and if that is the case, the end result may be a reduction or elimination of life insurance for all employees.

Long term disability benefits are typically calculated based on a percentage of income and are payable, in effect as wage replacement, for the duration of the disability or until the employee reaches age 65.  The age limitation is based on the common understanding of an employee’s working life.  Clearly that assumption would need to be changed if the norm for retirement ceases to be 65.  As with life insurance, if the age “cap” is removed from the insurer’s policy, it will become a question of how to determine the proper maximum length of benefit payments.  As with life expectancy tables, it may be possible for actuaries to predict, at certain ages, how long a typical employee would work.  For example, a male of 50 years of age is likely to live to 78, while a male of 70 has a life expectancy of over 12 more years.  Could the same estimates be made depending on the age and profession of the worker?  What is certain is that the cost of the coverage, assuming that it will be payable for a longer period, will increase, and the employer will have the choice of paying the higher premium, or reducing the coverage. 

Pension plans are not typically objectionable on the basis of age, since their whole design is to provide payments that begin only at a certain age.  However, each pension plan should be reviewed to check whether there is a point (based on age) that additional contributions cannot be made, or a point when withdrawals must be made.  In short, do the plan provisions have the effect of penalizing someone who chooses to work beyond age 65, or are the terms age-neutral?

It is timely for employers to be asking the questions of their benefit plan carriers and pension administrators.

Managing the Older Worker

It is inaccurate to suggest that all workers who are approaching age 65 are less than fully satisfactory employees.  In fact, many are outstanding contributors with an excellent work ethic.  That is not always the case however, and in many situations, employers may tend to view some older workers with benign neglect.  If productivity is lower, or attendance is poorer, or if the older employees are less likely to buy into new technology and other changes, they are often “cut some slack” based on long service and the expectation that they will retire in the foreseeable future.  If the anticipated legislative change occurs, there will be no automatic exit, and employers will need find alternative measures to end the relationship.

Currently (and until December 12, 2006), if an employee is not satisfactory, an employer can consider termination without legal cause, which means that the employee can be released, subject to being provided with a proper severance package.  Depending on age, length of service and position with the employer (as well as other factors) the severance package can be substantial, but the payment still provides a way out for the employer.  Under the new regime, if the decision is based (even in part) on age, it would constitute discrimination and there would be a breach of the Human Rights Code.  The employer could be subject to dramatically increased damage awards for lost wages, compensation for injury to dignity, and even reinstatement.    

The clearest way to protect against having to deal with an unsatisfactory worker for “life” is to implement and enforce employment standards policies equally for all workers.  Attendance management, productivity measurement, accuracy standards and accountability can all be established and maintained.  The older worker, just as a worker under a disability, may still need to be accommodated, but at least if the employer can begin with some objective standards of measurement, there is the potential to maintain an adequate level of performance, or alternatively to discipline an employee up to the point of termination.  If this sounds like the government indirectly imposing another level of employer bureaucracy, that may be so.  Some employers are vigilant at maintaining standards of performance, complete with annual reviews, stated objectives and progressive discipline.  For them, the need to maintain those standards regardless of age may not be a big additional burden.  For others, the removal of mandatory retirement policies may well force them to do what they have avoided, or have preferred not to do, namely monitor, evaluate and discipline employees in order to maintain objective standards.  Although it may not seem kind to keep the heat on older employees, consistent treatment may be fairest to all.

Conclusion

Employers have between now and December 12, 2006 to get their workplaces “in order”.  Knowing that the legislation is changing, it is appropriate to plan now:  by reviewing policies, benefit plans and pensions, and to implement and maintain age-neutral performance and discipline standards.

Although many workers still anticipate, or will be forced by their own health, declining performance or other circumstances to retire at a “normal” age, it is very likely that others will begin working well past age 65, and employers will be required to avoid age discrimination in their treatment, including the need to accommodate where necessary up to the point of undue hardship.