Can You Collect Severance If You Retire?

Can you Collect Severance If You Retire?

In Ontario, you cannot collect severance if you retire voluntarily, but you can collect severance if you are asked to retire or given a “retirement package”. Alternatively, your employer may have a retirement plan/policy in place that vests over your whole career and pays you a “severance” once you choose to exercise it. 

Retiring Without Severance

Technically, there is no legal difference between quitting and retiring, so the same legal consequences apply for both. In other words, as everyone knows, you cannot collect severance if you quit your job. Similarly, you cannot collect severance if you chose to retire on your own (unless you and your employer agreed otherwise under some retirement plan/policy, etc.).

Therefore, purely for financial reasons, the age-old advice is never to retire and instead wait to get terminated without cause. This statement is especially true for long-standing employees who have accumulated a common law entitlement to two years’ severance pay if they were ever let go. 

This is not to say that everyone will choose to wait to leave work until they are let go to collect severance. Some people will weigh the financial implications of the immediate freedom of voluntary retirement and choose to forgo the windfall. Other people are concerned that they will never be terminated – that their boss will wait it out forever because their severance is too expensive, which is sad and dystopian but still a reality for some older workers. 

I’ve heard stories of some long-standing employees who successfully “slowed down” at work once they reached their wits’ end to get terminated without cause to collect severance. However, this is a strategy that bears some risk. Although it is a high hurdle, employers can fire employees for cause if they deliberately perform so poorly that they have essentially breached their employment contract. 

Collecting Severance If You Are Asked to Retire 

One of the best gifts an employer can give an employee after years of hard work and loyalty is the offer of a retirement package when the employee is ready to leave on their own. This is when an employee can voluntarily retire and still collect a severance (or something akin to or greater than normal severance).

As I mentioned above, some employers have policies in place that pay their workers a severance if they decide to retire (sometimes called “Early Retirement”). If this is the case for you, check your retirement plan or policy and speak to HR about your options.

Other employers who do not have Early Retirement plans in place may still decide to offer retirement severance to select employees as a thank you and as a way to help them transition to retirement. Perhaps the employee expressed an interest in retirement, and the boss wanted to take care of them. If this is the case, then the employee and the employer should enter into a written agreement. 

Other employers may decide to terminate long-standing employees but choose to classify it as retirement for optics. In other words, some employers may allow the employee to “retire” publicly, but behind closed doors, the employee is terminated and is therefore entitled to severance. This doesn’t sound nice but could be excellent (if the employee was close to voluntarily retirement anyway). It saves the employee’s pride and also grants him large amounts of monies. 

In rare cases, an employer forces an employee to retire so it can save paying severance. This is illegal and constitutes a constructive dismissal. Constructive dismissal is the same as a termination, except there is no explicit “you’re fired”. If this happens, even if the employee voluntarily resigns after being pushed, she can collect severance as if the employer terminated her. However, unfortunately, she will have to go to the expense and time to litigate the issue because the employer will likely deny it. If this is your situation, call a lawyer. 

Mandatory Retirement

Some unions’ collective agreements had a mandatory retirement clause. However, in 2006, all mandatory retirement clauses became illegal. No worker can be forced to retire at any age in Ontario. The only time a mandatory retirement clause can be allowed is if there is a bona fide occupational requirement, like firefighting. 

Things To Consider When Retiring

The decision to retire is a very personal one that requires many different essential considerations. 

One of your considerations should be about your rights to severance.

People who are at retirement age are more likely to have an entitlement to a hefty severance package. 

Choosing to retire on your own could wipe away your full entitlements to severance that you have accumulated over the years. 

Alternatively, you may be lucky in that your employer has a plan in place to pay you a severance even if you retire voluntarily. 

Or you could be asked to retire gracefully with a secret severance deal. 

In any event, it is critical to get all the facts from a trusted source like a lawyer before the big decision. Your employer may present you with an offer that sounds great but could actually be less than what you are owed if you were terminated. 

Thus, taking the time to consider everything before deciding to retire should include getting your severance entitlements calculated by a lawyer.

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