As of May 2026, mandatory retirement at age 65 is strictly illegal under the Ontario Human Rights Code. However, B2B employers can legally implement voluntary “Phased Retirement Agreements.” Having an employment law firm draft a compliant, non-discriminatory contract generally costs between $1,500 and $3,000 CAD.
Retaining institutional knowledge while managing an aging workforce is a massive challenge for Ontario businesses. In thriving commercial hubs like Markham, Kitchener-Waterloo, and Toronto, tech and manufacturing companies frequently encounter senior employees who are slowing down but are not quite ready to leave. Before 2006, companies could simply force these workers to retire at age 65. Today, doing so is a direct violation of the Ontario Human Rights Code (OHRC) and will expose your company to massive age discrimination lawsuits.
Instead of facing costly litigation at the Human Rights Tribunal of Ontario (HRTO), forward-thinking employers use Phased Retirement Agreements. 📋 These voluntary, legally binding contracts allow older workers to gradually reduce their hours and responsibilities over a set period, culminating in a mutually agreed-upon final retirement date. This guide explains how to structure a lawful phased retirement for your company, avoiding the pitfalls of age discrimination while ensuring a smooth transition of duties.
Step-by-Step Process for Structuring Phased Retirement in Ontario
Drafting a Phased Retirement Agreement requires a delicate balance of employment law and human resources strategy. It is crucial that the employee never feels pressured or coerced into signing, as any hint of forced retirement will invalidate the contract.
Step 1: Understanding the Prohibition on Mandatory Retirement
Your management team must understand that age is a protected ground under Section 5 of the OHRC. You cannot unilaterally alter an older worker’s contract or push them out simply because they turn 65. The only rare exception is a Bona Fide Occupational Requirement (BFOR), such as mandatory retirement ages for firefighters or pilots due to strict safety regulations. For standard corporate roles, the choice to retire must be 100% voluntary.
Step 2: Proposing a Voluntary Transition Plan
The conversation should ideally be initiated by the employee, or introduced broadly as a company-wide benefit available to all senior staff. 🗣️ HR should propose a timeline-often spanning one to three years. The plan will outline how the employee will reduce their working hours (e.g., dropping to a 3-day work week) and gradually hand over their core responsibilities or client portfolios to a successor.
Step 3: Drafting the Employment Contract Amendment
Your corporate law firm will draft a formal amendment to the employee’s existing contract. This Phased Retirement Agreement must explicitly detail the new reduced salary, the prorated vacation entitlements, and exactly how the company’s health and dental benefits will be managed. Crucially, the contract must establish a definitive, unalterable final date of employment (the retirement date).
Step 4: Ensuring Independent Legal Advice (ILA)
To protect your company from future human rights claims, you must strongly encourage (and often pay for) the employee to seek Independent Legal Advice. 📝 An outside employment lawyer must review the agreement with the employee to ensure they understand they are voluntarily giving up their right to work past the agreed-upon final date. A Certificate of ILA attached to the agreement acts as a powerful shield against future litigation.
Step 5: Executing the Agreement and Succession Planning
Once signed by both parties, the agreement takes effect. Your company can now safely invest in hiring and training a replacement, knowing exactly when the senior employee’s tenure will end. On the final date outlined in the contract, the employment relationship naturally concludes without triggering wrongful dismissal or severance pay obligations, as the employee has legally resigned.
How Much Does it Cost in Ontario?
Implementing structured retirement plans requires upfront legal investments to prevent devastating backend litigation costs. Below is a breakdown of the typical corporate expenses in Canadian dollars (CAD) as of May 2026.
| Corporate Expense / Service | Estimated Cost (CAD) | Details |
|---|---|---|
| Law Firm Drafting Fee | $1,500 – $3,000 | To draft a customized, OHRC-compliant agreement. |
| Funding the Employee’s ILA | $500 – $800 | Paid by the employer to ensure the contract is legally binding. |
| HR Consultation / Strategy | $300 – $500 per hour | To design company-wide phased retirement policies. |
| Avoided HRTO Litigation Cost | Saves $30,000+ | The legal fees saved by avoiding an age discrimination lawsuit. |
How Long Does the Process Take?
Proper succession planning takes time and patience. The initial negotiation and drafting of the Phased Retirement Agreement generally takes 2 to 4 weeks to finalize and get signed. The actual transition period outlined in the contract is highly customizable, with most Ontario businesses opting for a phased schedule lasting between 12 to 36 months before the employee’s final retirement date.
Frequently Asked Questions (FAQ)
Can we force an underperforming 66-year-old to take phased retirement?
No. If an older employee is underperforming, you must manage them through standard performance improvement plans (PIPs), just as you would a 30-year-old. Forcing phased retirement based on age is discriminatory and will trigger an HRTO complaint.
Do we have to pay severance at the end of the phased retirement?
Generally, no. A properly drafted Phased Retirement Agreement acts as a voluntary, post-dated resignation. Because the employee is mutually agreeing to end the employment relationship on a specific date, statutory notice and severance pay under the Employment Standards Act (ESA) are typically not required.
What happens to company health benefits at age 65?
In Ontario, human rights laws currently permit employers to cut off or reduce certain health, dental, and life insurance benefits once an employee turns 65, without it being considered age discrimination. However, you must clearly outline these benefit changes in the Phased Retirement Agreement.
Does a phased retirement affect the employee’s WSIB coverage?
Workplace Safety and Insurance Board (WSIB) coverage continues as long as they are employed. However, if a worker is injured after age 63, WSIB loss of earnings (LOE) benefits generally only last for two years from the date of the injury, rather than until age 65.
Can the employee change their mind and cancel the retirement date?
If the Phased Retirement Agreement is drafted tightly and the employee received Independent Legal Advice, the contract is legally binding. The employee cannot unilaterally cancel their retirement date unless the employer actively agrees to amend the contract.
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