More than 50 years ago on Sgt. Pepper’s Lonely Hearts Club Band, the Beatles wondered about the implications of turning 64. While the Fab Four’s music has stood the test of time, can the same be said of aging executives? They need to ask their companies “[w]ill you still need me, will you still feed me when I’m 60-?”
The New Jersey state law that prohibits age discrimination does not set out any age parameters. Employees can sue if they suffer an adverse employment action because they are considered too old (regardless of age) or even too young for a job. The one exception is in regard to job applicants who are at least age 70. Employers may refuse to hire them, but cannot refuse to renew their contracts based upon their age. Almost 10 years ago, the New Jersey Supreme Court held that state law protects those workers over 70 who have a pre-existing relationship with an employer from being pushed out of the workforce based on age.
The federal age discrimination law, the Age Discrimination in Employment Act (ADEA), was enacted in 1967. Initially, the upper limit for bringing a federal age discrimination claim was 65. In 1978 the cap was moved to age 70 and in the 1986 amendments to the ADEA the upper limit age cap was totally removed, enabling a plaintiff to bring a federal claim no matter how old he or she is. For example, an 80 year old can pursue an age discrimination claim if the plaintiff can establish that he or she was still qualified for the job but was denied it due to his or her age. However, there are two exceptions where an employer lawfully can fire an employee because of his or her age.
The first exception is where an employer can establish that age is a bona fide occupational qualification (BFOQ). For example, the Federal Aviation Administration used to have an Age 60 Rule that barred individuals who reached their 60th birthdays from serving as pilots or copilots on commercial flights because their age supposedly caused disqualified them to fly. A federal regulation of the U.S. Equal Employment Opportunity Commission (EEOC), which oversees federal discrimination laws, sets forth what an employer must prove to establish that age is a BFOQ. In essence, the employer must demonstrate that an age limit is necessary for the business and that all, or substantially all, of the individuals are in fact disqualified. If the goal is public safety, employers must also be able to demonstrate that there are no acceptable alternatives that would equally or better advance that goal.
The other, lesser-known, exception to the age discrimination laws applies to executives. At age 65 or older, but only under certain circumstances, companies are permitted to fire executives to make room for younger employees to run their businesses. Does this provision make sense today?
As we age, it is more likely that we consider age 65 to be the new 55, but whether the ADEA needs to be amended to increase the age from 65 to 70 or some other age when companies can force executives to retire is a debate for another day.
The regulation permits the compulsory retirement of any employee who is 65 and who, for the two-year period immediately before retirement, is employed in a bona fide executive (as defined in one of the white collar exemptions to the overtime laws) or higher policymaking position, but only if the employee is entitled to an immediate, nonforfeitable annual retirement benefit of at least $44,000. Alternatively, a company can offer a position of lesser status or a part-time job. But if the employee accepts a position of lesser status or a part-time position, he or she cannot be treated any less favorably, on account of age, than any similarly situated younger employee.
Management-side attorneys who draft executive contracts should note that companies lose the ability to let an executive age 65 or older go if the executive’s retirement benefit is forfeitable. For example, if a pension, profit-sharing, savings or deferred compensation plan provides for the cessation of payments to a retiree if the executive engages in litigation with the company or goes to work for a competitor, the exemption from the ADEA for a bona fide executive is lost.
Do executives lose their touch at 65? As baby-boomers get older they probably don’t think so. Experience outweighs any slowing down. On the other hand, companies are entitled to set long range plans and have executives young enough to see them through. Therefore, even executives who have run their companies for many years, and steered them down “The Long and Winding Road” are subject to being terminated even if the company’s decision is based upon their age.
Steven I. Adler is the co-chair of Mandelbaum Salsburg’s Labor and Employment Group and co-chair elect of its Litigation Department