In order to avoid a mandatory reduction in force, many employers seek to achieve personnel cuts through incentive retirement programs.  These programs usually offer enhanced severance benefits in return for eligible employees agreeing to voluntarily leave work.  In Morgan v. A.G. Edwards & Sons, the Eighth Circuit Court of Appeals concluded last week that such programs do not discriminate against older workers.  As a result of market declines in 2001 and 2002, A.G. Edwards implemented a voluntary severance incentive plan for managers over 50 years of age.  In return for these employees’ agreeing to retire, they received additional severance and medical benefits.  The plaintiff did not accept the incentive package, and was later demoted and terminated for performance reasons.

 

In his suit, the plaintiff alleged that the voluntary severance plan was evidence of A.G. Edwards’ intent to discriminate against older managers because it was designed to get rid of employees over 50.  The Eighth Circuit disagreed, concluding that the program fell under a “safe harbor” in the Age Discrimination in Employment Act that allows companies to offer early retirement programs to older employees.  The plaintiff argued that the plan was not voluntary, because A.G. Edwards advised eligible participants that if they failed to accept the offer, they could be subject to layoff under less favorable terms.  The court stated that the employer was being honest, not trying to coerce employees to accept the offer.  The fact that some retired employees were later replaced does not remove the plan from the ADEA safe harbor because the company still cut costs in making these changes.  If conducted in a careful, voluntary manner, early retirement programs can legally reduce or avoid the need for mandatory layoffs.