The Legality of Early Retirement Incentives Under the Age Discrimination in Employment Act
| Jurisdiction | United States,Federal |
| Citation | Vol. 3 No. 8 Pg. 12 |
| Pages | 12 |
| Publication year | 1990 |
Brian E. Neuffer, J.
Increasing numbers of employers are using early retirement incentives to reduce their work forces.[1] This practice allows for a restructuring of the work force without the ill effects of a mass involuntary layoff.[2] Early retirement incentives can make room for affirmative action programs and provide promotional opportunities for younger employees.[3] Early retirement incentives are often viewed as genuine benefits to older workers.[4]
Despite the advantages of voluntary early retirement programs, there have been challenges to their legality under the Age Discrimination in Employment Act (ADEA).[5] The stated purpose of the ADEA is to promote the employment of older persons based on their ability rather than age, and prohibit arbitrary age discrimination in the workplace.[6] Certain employer practices can be struck down if they are shown to be a "subterfuge" to evade the purposes of the ADEA.[7]
It has been said that the "proper treatment of early retirement programs is the most difficult question under the Age Discrimination in Employment Act."[8] This article seeks to elucidate this difficult question. Section I introduces arguments on both sides as to whether early retirement incentives should be prohibited under the ADEA, and § II summarizes the current state of the law which allows early retirement incentives so long as they are voluntarily agreed to.
I. THE DEBATE OVER THE LEGALITY OF EARLY RETIREMENT INCENTIVES
A. The Argument Favoring Legality
Historically, there has been a presumption that age-based early retirement incentives are lawful.[9] They have been regarded as a beneficial option to employees and a useful tool for employers for staff reduction.[10] This view holds that early retirement incentives are an added benefit to employees, the sort of thing many people would pay to receive.[11] Further, the ADEA does not forbid treating older workers more generously than others.[12]
From the employer's perspective, if the employer has no choice but to reduce its work force, an early retirement incentive seems more humane than a mass layoff where young people having no pensions to fall back on would lose their jobs.[13] From an economic standpoint, if older workers are being paid higher salaries, and such workers can be voluntarily replaced by younger employees being paid less, employers will be able to operate more profitably. This may benefit the economy as a whole.
Another argument is that early retirement incentives allow room for affirmative action programs.[14] Older workers tend to be disproportionately white and male.[15] Employers seeking to employ more women or minorities in order to avoid Title VII liability, [16] and employers seeking to avoid laying off younger workers who might be women or minorities will find an early retirement program an effective alternative.
Finally, it can be argued that the ADEA itself does not expressly forbid early retirement incentives. In the 1970s, it was common for employers to impose mandatory early retirement plans.[17] In 1978, Congress amended the ADEA[18] to forbid mandatory early retirement. However, Congress included nothing that would forbid voluntary early retirement. By not forbidding voluntary plans along with mandatory retirement plans, it may be argued that Congress has silently affirmed the practice of early retirement incentives.
B. The Argument Against Legality
One of the paramount goals of the ADEA is to keep older people in the work force.[19] A basic premise underlying enactment of the ADEA was that a tragic waste occurs when older workers leave the work force. A valuable resource—"the talent and experience accumulated by our older workers over the course of decades"—is lost.[20] It has been determined that age discrimination has an adverse effect on "the economic system as a whole" because it "wastes a wealth of human resources."[21] Since early retirement incentives tend to move older workers out of the work force before they would otherwise retire, they arguably are contrary to the purposes of the ADEA.
Further, it has been argued that early retirement incentives violate the ADEA because they harm older people individually and as a group.[22] This view contends that an early retirement incentive is a "wolf in sheep's clothing—it may seem like a lovely fringe benefit at first, but ultimately it may harm the individuals who accept it by diminishing the length and quality of their lives."[23] Further, early retirement incentives perpetuate ageist stereotypes. "The ADEA is designed to eradicate both conscious and unconscious stereotypes about the abilities of older workers."[24] Since early retirement incentives are typically targeted at older workers, they are arguably based on an ageist stereotype that older persons are competent to do nothing but retire.[25]
Another argument is that early retirement incentives are not really voluntary. Employers may engage in coercive tactics to gain an employee's acceptance of the retirement incentive.[26] Similarly, the employee may have the choice of either accepting early retirement or being laid off without any severance bonus.[27] Further, inherent in an early retirement offer is the message that the employee is no longer needed or wanted.[28] It has been said that a "tempting carrot can compromise voluntariness just as much as can a threatening stick."[29]
Finally, the ADEA itself could be construed as forbidding early retirement incentives. Section 623(f)(2)[30] allows an employer to defend a charge of age discrimination if the employer can show that it...
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