[See update in green at the end of article]
It is fairly common practice to allow employees to work beyond their retirement age. But what if such employees want to hang on to their job indefinitely? And to what extent are post-retirement employees protected against unfair dismissal?
In terms of section 187(1) of the Labour Relations Act (LRA), dismissal of an employee on the basis of age is ‘automatically unfair’. This could result in an employer having to pay up to 24 months’ remuneration in compensation. Section 187(1)(f)(b), however, provides that dismissal on the basis of age is fair if the employee has reached the normal or agreed retirement age for persons employed in that capacity.
Despite a number of decisions by the Labour Courts involving the interpretation of this exception, there is still no absolute certainty about what it means. In Solidarity obo Strydom and State Information Technology Agency (SITA) a number of SITA employees had been allowed to work beyond the age of 60, which was the ‘normal’ retirement age for them according to the terms of the applicable retirement fund rules. However, the same rules also provided for an extension of the retirement age until a maximum of 67 years of age provided certain conditions are met. One of the conditions was that SITA had to ‘consent’ to an extension.
The employees were all allowed to continue working beyond the normal age but were at one point – before they had turned 67 – given notice of termination on the basis that they had reached the normal retirement age.
The employees argued that consent had been tacitly given for the employees to work until the age of 67 (based on various correspondence between the employees and SITA) and that, therefore, a new retirement age had been agreed upon (the ‘agreed’ retirement age). Terminating their services prior to them reaching the age of 67 years thus constituted an automatically unfair dismissal.
Vulnerable after retirement age
The court, after referring to a number of prior decisions by the Labour Appeal Court, held that employees cannot rely on both a normal and an agreed retirement age to found their claim. Having reached their normal retirement age as per the rules of the retirement fund, they were ‘vulnerable’ to their employment being formally terminated by the employer on notice at any time thereafter. They are not at liberty to argue that a new age had been agreed upon and that terminating their services prior to them having reached that age therefore amounted to an automatically unfair dismissal.
Employer’s right to terminate
What can we gather from this and other cases on the topic? First, if an employee has reached the formally agreed or normal retirement age and is allowed to continue working beyond that age, the employer may at any time thereafter serve the employee with a notice of termination. However, this only applies if –
- An agreed or normal retirement age exists (see Labourwise Newsletter on what constitutes a normal retirement age – When elderly employees step down: Retirement or Dismissal?);
- The employee has reached that age; and
- Age is the only reason for termination of the employee’s services. If the reason is, e.g. redundancy or misconduct, the termination must be treated as an ordinary dismissal subject to the Code of Good Practice: Dismissal.
What is not clear from the SITA case is whether notice of termination should be given in terms of the provisions of the employee’s employment contract, the Basic Conditions of Employment Act (BCEA), or at the discretion of the employer. We would advise employers to give notice as per the employment contract where this is more generous to the employee to avoid possible claims based on a breach of contract or contravention of the BCEA.
What should employers do?
We would further advise employers to –
- Ensure that a retirement age is either stipulated in employees’ contracts (an ‘agreed’ age) or that the retirement fund rules (containing a ‘normal’ retirement age) are expressly incorporated into the contracts.
- When an employee is permitted to continue working beyond retirement age, it should be made clear (preferably in writing) that the employer retains the right to terminate the employee’s services at any time on notice.
- Follow normal dismissal procedures if the reason for termination is not based solely on the employee’s age.
Barney Jordaan for www.labourwise.co.za
The Labour Appeal Court (LAC) confirmed the above-mentioned principles in Motor Industry Staff Association and Landman vs Great South Autobody cc t/a/ Great South Panelbeaters (judgement handed down on 27 September 2022).
The facts were quite straightforward: About 10 months after the employee reached the retirement age of 60, the employer wrote to the employee that his services would terminate four weeks later as he had reached the agreed retirement age.
The following extracts from the judgement should be of interest:
- Interpretation: “Properly construed, section 187(2)(b) affords an employer the right to fairly dismiss an employee based on age, at any time after the employee has reached his or her agreed or normal retirement age.”
- No tacit contract/amendment: “Properly construed, section 187(2)(b) does not contemplate a new tacit contract coming into existence between an employer and employee (by virtue of their conduct) which governs their employment relationship when the employee continues to work for his or her employer after reaching the normal or agreed retirement age. In the same vein, section 187(2)(b) does not envisage a tacit amendment of the contract to the effect that the employee would continue to work indefinitely or that a new retirement age applies...”
- Observation on the purpose: “This interpretation gives effect to the right that accrues to an employer in terms of section 187(2)(b) to fairly dismiss an employee who has passed the agreed or normal retirement age. Significantly, it is consistent with the purpose of section 187(2)(b) which is to allow the employer to dismiss employees who have passed their retirement age to create work opportunities for younger members in society.”
- Observation on constitutional rights: “Construing section 187(2)(b) in a manner that allows an employer to create opportunities for a younger and more innovative workforce, especially in a country such as ours with unprecedented unemployment levels, is not inconsistent with the spirit, purport, or objects of the right to fair labour practices in section 23 of the Constitution.”
- Caution: “… it is impermissible for an employer to invoke the defence in section 187(2)(b) where the real reason for the dismissal is based on operational requirements or misconduct or incapacity.”