Retirement Age and Terminations

Abruptly terminating an employee that has been allowed to continue working after the company’s normal or agreed to retirement age could lead to costly disputes. There are, however, ways to avoid this.

South African law does not prescribe an employment retirement age. An employer is to determine what the retirement age is and reach an agreement on what the agreed retirement age is in terms of the contract of employment or relevant workplace policy. 

It may happen that an employee is still productive beyond the agreed retirement age and is allowed to continue working by their employer. However, when at a later stage the employer wishes to terminate such employment, the question arises as to how this can be done fairly. 

Firstly, it is important to note that discrimination based on age is unfair. Employees who are discriminated against based on age may set legal proceedings into motion in terms of the Employment Equity Act and can claim damages or compensation. Further, in terms of the Labour Relation Act, a dismissal is considered “automatically unfair” if it is based on an employee’s age, unless the employee has reached the normal or agreed to retirement age. It therefore becomes clear that this exception, contained in section 187 (2)(b) of the Labour Relations Act, allows an employer to terminate an employee’s services fairly based on them having reached retirement age.

South African courts have developed different approaches in dealing with the termination of employment of employees who have been allowed to continue working past the agreed or normal retirement age.  

It is important to consider the following scenarios:

a. whether a discussion took place between the employee and the employer pertaining to the employee’s upcoming retirement and an agreement was reached that the employee would work beyond retirement age, or

b. whether the employee simply continued working beyond retirement age with no mention by either party of the retirement age being reached.

In the first scenario (a), 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 terminate the employee’s services in terms of the exception contained in section 187(2)(b) of the LRA once the new agreed-upon retirement age is reached. 

In the case of Karan t/a Karan Beef Feedlot & Another v Randall [2012] 11 BLLR 1093 (LAC), the employer sent a notification to the employee confirming that the employee would soon reach the agreed retirement age of 60, but that the employer wanted the employee to continue working on the condition that the employee’s contractual notice period would apply if the employer later wanted him to retire, which in this case was a period of 1-month.

The employee did not respond to the letter issued to him and continued working. 

Close to two years later, the company notified the employee that he would be retired and terminated his employment on one month’s notice.  The termination led to the employee referring to an automatically unfair dismissal dispute.  The Labour Court held that the employer could not unilaterally impose a new retirement age on the employee, and upheld the employee’s automatic unfair dismissal claim. 

On appeal, the Labour Appeal Court disagreed, and found that the employee had tacitly agreed to continue working beyond the agreed retirement age. The employee had further left it to the company to determine his retirement age on 1-month notice. The Labour Appeal Court found that there was nothing unlawful about the agreement and that the employee had the opportunity to submit rejections and to make counterarguments.

In the second scenario (b), when the employee simply continued working beyond retirement age with no mention by either party of the retirement age being reached, the case law is not as clear. 

The Labour Court has previously had different approaches to this situation. In Schweitzer v Waco Distributors (a division of Voltex (Pty) Ltd) [1999] 2 BLLR 188 (LC), the Labour Court held that when age is the reason for termination, an employer 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 in section 187 (2)(b) of the LRA applies and the termination does not amount to unfair age discrimination or unfair dismissal. The employee may therefore be retired at any stage after reaching the established retirement age without the employer giving more notice or following pre-retirement procedures.  

Similarly, in Rubenstein v Price’s Daelite (Pty) Ltd [2002] 5 BLLR (LC), 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.

In Botha v Du Toit Vrey and Partners CC [2006] 1 BLLR 1 (LC), 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 an agreement on the date of retirement, to avoid “surprise and indignation”. 

From the above cases, it is clear 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 serving notice.  If the employee does not reject this and make a counter-proposal, it will be concluded that a tacit agreement has been reached.  However, if a new retirement age is agreed upon, then termination of employment will only be fair if the employee has reached the new agreed-upon retirement age. 

This does not prevent an employer from fairly dismissing the employee earlier for another reason recognised in law, provided that the real 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 new retirement age is reached, there are still options open to employers who wish to retire the employee at a later stage. The employer should first consult with the employee about the proposed decision to retire them and the employee should have the chance to make representations before being given notice of their retirement.  

Employers are advised to review their employment contracts and policies to ensure consistency and to provide certainty.  If employees are allowed to continue working beyond retirement age, an agreement about when they will be required to retire in future should be clearly recorded in writing to minimise costly disputes. All instances where employees are permitted to work beyond retirement age should be strictly regulated. 

Invictus Group is able to assist companies with the necessary advice so that all procedures and legalities are complied with.

Contact Invictus Group on 0861 737 263 for us to assist you.