This article was first published in the 1st quarter 2018 edition of Personal Finance magazine.
Costly disputes can arise when employers terminate the services of employees who have continued working after an agreed or normal retirement age. There are, however, ways to avoid this. There is no employment retirement age prescribed by law in South Africa. An employer can either agree on an age with its employees (“agreed” retirement age) or follow a standard practice of requiring employees to retire at a particular age (“normal” retirement age).
But many employees remain productive beyond the agreed or normal retirement age and continue working. The question is, when and how can an employer fairly terminate the services of someone in this position, who has carried on working beyond retirement age?
Age discrimination is unfair
South African law protects employees against unfair discrimination. Section 6(1) of the Employment Equity Act (EEA) prohibits unfair discrimination on a number of grounds, including age. Employees who are discriminated against because of their age may institute legal proceedings under the EEA and claim damages or compensation.
Further, in terms of the Labour Relations Act (LRA), a dismissal is “automatically unfair” if the reason for it is the employee’s age unless the employee has reached the normal or agreed to retirement age for employees in that capacity. This exception is contained in section 187(2)(b) of the LRA. It is important to understand clearly when and if it applies. An automatically unfair dismissal may result in an order of retrospective reinstatement, or payment of compensation of up to 24 months’ remuneration.
Our courts have developed different approaches towards terminating the employment of employees who continue working beyond the agreed or normal retirement age.
An important consideration is whether:
- The employee and the employer discussed the employee’s impending retirement and specifically agreed that the employee would work beyond retirement age; or
- The employee simply continued working beyond retirement age with no mention by either party of the retirement age being reached.
Scenario 1. Agreement (which can be tacit)
In the first scenario, our courts have held that an employer and an employee may agree that the employee will continue working for a specified period beyond the agreed or normal retirement age or until a new agreed date. The employer can then only rely on the exception in section 187(2)(b) of the LRA once the new agreed retirement age is reached.
The agreement on a new retirement age may be express or implied. In the case of Karan t/a Karan Beef Feedlot & Another v Randall , the employer sent the employee a letter confirming that he would soon reach the agreed retirement age of 60, but said the company wanted him to continue working and that his contractual notice period would apply if it later wanted him to retire.
The employee did not respond to the letter and continued working.
Almost two years later, the company informed the employee that he would be retired and terminated his services on one month’s notice. The employee claimed an automatically unfair dismissal. The Labour Court held that the employer could not unilaterally impose a new retirement age and upheld his unfair dismissal claim.
The Labour Appeal Court disagreed, finding the employee had tacitly agreed to work beyond the agreed retirement age and had left it to the company to determine his retirement age on notice. There was nothing unlawful or unfair about this agreement. It had been open to the employee to reject the company’s condition and to make a counter-proposal.
Scenario 2. No agreement on a new retirement age
In the second scenario, the case law is not so clear. In the Karan Beef case, the Labour Appeal Court considered the following to be a plausible argument: that where an employee continues working beyond the normal or agreed retirement age without agreement on a new retirement age, the employer can rely on the exception from that date on. The employer can then at any stage require the employee to retire on reasonable notice. However, because of the facts of that case, the court did not have to decide the issue.
The Labour Court has previously had differing approaches to this situation.
In Schweitzer v Waco Distributors (a division of Voltex (Pty) Ltd) , the Labour Court held that where a termination is based on age, one needs to ask three questions to determine whether the LRA exception applies. First, was the dismissal based on age? Second, was an agreed or normal retirement age in place? Third, had the employee reached that age? When the answer to all three is yes, the exception applies and the termination does not amount to unfair age discrimination. The employee may, therefore, be retired at any stage after reaching the established retirement age without the employer being obliged to follow any pre-retirement procedure. Similarly, in Rubenstein v Price’s Daelite (Pty) Ltd , the Labour Court held that an employer’s permission for an employee to work beyond the normal or agreed retirement age did not constitute a waiver of the right to compel an employee to retire at some later date.
However, in Botha v Du Toit Vrey and Partners CC , the Labour Court held that although the employer was entitled to retire the employee after reaching the agreed or normal retirement age, merely giving him one month’s notice was unfair. The employer should have consulted with the employee and attempted to reach agreement on the date of retirement, to avoid “surprise and indignation”.
From these cases it seems that it is lawful for an employer, at the time that an employee reaches the agreed or normal retirement age, to request the employee to continue working while reserving the right to terminate the employee’s services at any later stage upon notice. If the employee does not expressly reject this and make a counter-proposal, this will be taken as tacit agreement to this. However, if a new retirement age is agreed, then termination of employment will be fair only if the employee has reached that new agreed retirement age.
This does not prevent an employer from dismissing the employee earlier for another fair reason recognised in law, provided that the true reason for the dismissal is not based on age.
Where an employee has continued working beyond the agreed or normal retirement age, and no agreement on a new retirement age is reached, then based on the current case law, it seems an employer would be entitled to retire the employee at any stage after passing that age. But in order to reduce risk in those circumstances, the employer should first consult with the employee about the proposed decision to retire him or her. The employee should have the chance to make representations before simply being given notice of his or her retirement. In addition, the notice provided should be reasonable in the circumstances.
Employers would be well advised to review their employment contracts, employment policies and retirement fund rules to ensure consistency on the company’s stipulated retirement age and to provide certainty for employees. If employees are to continue working beyond retirement age, agreement about when they will be required to retire in future should be clearly recorded in writing.
As always, consistency and certainty will assist in avoiding costly disputes.
Chloë Woodin is an associate and Shelley Wilson a partner at Pan-African law firm, Bowmans.