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When executive wants to ease into retirement, can we insist on a ‘retirement contract’?

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in Discrimination and Harassment,Human Resources

Q. An executive wants to retire in one year and gradually reduce her schedule until then. Our business needs don’t allow us to have this executive role be part-time on a long-term basis. Can we approve this request on the condition that the executive sign an agreement binding her to retire within one year?

A. An agreement memorializing the executive’s voluntary retirement decision is fine. It may also be permissible to require the executive not to change her mind, given that the company would be agreeing to the part-time schedule in reliance on the retirement date the executive has chosen. However, absent proof that the company relied on that promise to its detriment, it could be hard to justify not permitting the executive to change her mind.

Age discrimination laws normally prohibit mandatory retirement. As such, the more cautious approach would be to permit the executive to defer her retirement date if she resumes a full-time schedule.

Alternatively, you might fall within a legal exception to the general prohibition on mandatory retirement.

The federal Age Discrimination in Employment Act (ADEA), which covers employers with at least 20 em­­ployees, permits compulsory retirement for individuals age 65 or older who have, for the two years preceding retirement, been employed as a “bona fide executive” or in a “high policymaking position” if the employee is entitled to an immediate nonforfeitable annual retirement benefit from a pension, profit sharing, savings or deferred compensation, or a combination of such plans, in the aggregate of at least $44,000.

For employers not covered by the ADEA, the em­­ployer would need to determine if state law contains a similar exception and whether state law permits the retirement agreement.

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