If you’re considering offering early retirement to one or more of your employees, voluntary should be the operative word. The federal Age Discrimination in Employment Act (ADEA) specifically forbids employers from terminating an employee on account of their age. ADEA applies to any worker aged 40 or over. Although, if you have employees who can be incented to retire willingly through an early retirement incentive plan (ERIP), there’s no reason why you shouldn’t pursue this strategy. One strong selling point is that your other employees will likely view this kind of layoff alternative in a positive light.
As with every alternative to layoffs, whether reducing your workforce by offering early retirement is right for your business depends on your unique challenges and long-term prospects. Your older workers may be paid a higher wage and be entitled to more benefits. Therefore, the cost of severance pay might pay for itself more quickly.
Adhering to ADEA
If you do choose to offer early retirement to any of your employees, you might want to work with an HR consultant or attorney who specializes in labor issues. You’ll want to determine how large an incentive would make sense for your company and be fair compensation, which the EEOC (Equal Employment Opportunity Commission) defines as a “consideration”:
Like any contract, a severance agreement must be supported by “consideration.” Consideration is something of value to which a person is not already entitled that is given in exchange for an agreement to do, or refrain from doing, something.
You can read the full EEOC document here.
Importantly, any early retirement agreement must include a legal contract, in which the employee knowingly and voluntarily waives age discrimination claims.
Finally, you should also be sure to familiarize yourself with the legal rights of your employees under the federal OWBPA (Older Workers Benefit Protection Act). OWBPA was added to the ADEA in 1990 as a further safeguard for older workers’ rights. Under OWBPA, you must give an employee at least 21 days to decide whether to sign a waiver of their rights to sue your company over age discrimination. If this waiver is presented to two or more employees, they must be allowed at least 45 days to make the decision. In both cases, your employees would then have seven days to revoke any waiver they’ve signed.
