Retirement agreements: The next frontier in employment contracts?

Without mandatory retirement, employers will be looking for ways to bring certainty to planning of staff levels

With the elimination of mandatory retirement in most provinces, employers cannot require nor compel employees to retire at 65 or any other age. Consequently, employers will be looking for ways to bring some certainty to human resource planning. Retirement agreements, if drafted carefully, can be a tool which helps achieve that objective.

Employers who previously relied on retirement at 65 to manage and predict employee turnover will be looking for new ways to do it without breaching human rights laws. However, conflicting objectives could present a problem. Some older employees might have valuable skills and experience, while it would be preferable for others to retire because of operational needs or poor performance. With the conflict between an employee’s right to choose her retirement date and the employer’s need for certainty, retirement agreements might be able to bridge the gap.

Employment contracts are usually a good way to ensure clarity on important terms of the employment relationship and the limits of an employer’s liability for notice or pay in lieu of notice for termination without cause. Provided they are truly voluntary, retirement agreements can confirm a fixed date an employee will retire and any changes in employment terms and conditions leading up to it.

Courts have considered the interpretation and enforceability of employment contracts and certain principles have evolved that make employment contracts more technical than some may realize. Also, employers and employees are not permitted to contract out of employment standards, labour codes and human rights laws. Retirement agreements should be drafted with these principles and laws in mind.

Given the usual bargaining power of employers, they should carefully consider their communications to employees about these agreements so there is no doubt employees are freely entering into the agreement to fix the retirement date. As a first step, employers may want to consider sponsoring retirement planning seminars to encourage employees to think about their circumstances and better equip them to make informed decisions. However, any agreements to blanket mandatory retirement policies will be void if they attempt to contract out of employment standards legislation.

It will not be enough to promise status quo in employment terms and conditions in exchange for a promise to retire on a certain date. Employers who want to actively encourage retirement — or retention — of their older workforce should consider incentives that appeal to older workers, such as phased retirement, financial bonuses or other perks.

Unilateral material changes to the employment relationship can expose an employer to a claim of constructive dismissal, so it is important to document in writing an employee’s agreement to any changes. What may seem like an attractive decrease in workload or stress to a senior employee may in practice result in a loss of influence of prestige he did not anticipate. Employers will want to ensure employees have faced up to these possible consequences at the outset and documented their consent in the retirement agreement.

Prior to the mandatory retirement bans, it was common for employers with underperforming employees to put up with performance problems if the employee was close to retirement age. Now it is important to manage performance proactively. If employers do not already have performance review processes which include performance improvement agreements, they will want to consider implementing one. They will not be able to institute performance management measures or criteria only on older employees.

Employers should always be alert to the possibility some performance problems may be based on a disability or illness, which triggers legal obligations to accommodate to the point of undue hardship. As the average age of employees increases, requests for accommodation will likely increase. While age in itself is not considered a disability, employers will be expected to accommodate reasonable age-based limitations, provided they can do so without undue hardship. Retirement agreements which provide for changed or phased reduction in work responsibilities can be a way for an employer to meet its duty to accommodate.

Nicole Byres is a partner with Clark Wilson LLP in Vancouver, specializing in labour and employment law, energy and natural resources law and business litigation. She can be reached at (604) 643-3173 or nmb@cwilson.com.

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