Dismissal after Retirement Age

Jun 13, 2023

The retirement age is normally stipulated in the contract of employment or it is determined by the rules of the retirement fund to which the employee belongs.

It happens frequently that an employer allows an employee to continue to work after reaching the normal retirement date/age due to that employee’s special skills and experience. Sometimes the employer and employee agree a “new” retirement age, but more often than not, the parties omit to do so, until the employer decides to terminate the employee’s employment due to being over the retirement age.

To what extent are post-retirement employees protected against unfair dismissal?

 

The law

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.

In the case of 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. 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.

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 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.

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 be gathered from the above case is that 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 –

  1. An agreed or normal retirement age exists;
  2. The employee has reached that age; and
  3. 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.

Employers should 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 Basic Conditions of Employment Act (BCEA).

 

Labour Appeal Court

In a judgement handed down by the Labour Appeal Court (LAC) on 27 September 2022 in the case of Motor Industry Staff Association and Landman vs Great South Autobody cc t/a/ Great South Panelbeaters, the court confirmed certain principles.

The facts of the case are that 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 judgement highlighted the following:

  • 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.
  • 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.
  • 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.
  • 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.
  • 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.”

What should employers do?

The general understanding or practice has been that if en employee works beyond the normal retirement date, a “new” retirement date must be agreed and when the employee reaches the “new” retirement date, only then may an employer terminate the employee’s employment.  In terms of the LAC judgment an employer can now terminate and employee’s employment at any time when the employee has worked beyond the retirement age by giving due notice.

It is advised that employers must ensure the following:

  1. 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.
  2. 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.

The content does not constitute legal advice, are not intended to be a substitute for legal advice and should not be relied upon as such. Kindly contact us on info@labourman.co.za or 021 556 1075 to speak to one of our consultants.

Author:

Wallace Albertyn

Wallace Albertyn is a Senior Associate and Legal Advisor at LabourMan Consultants.

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