Retirement Age & Employment Termination: New guidelines after Constitutional Court Judgement
Retirement is a significant milestone for both employees and employers. However, when it comes to terminating employment due to reaching retirement age, legal complexities arise. Employers must navigate South Africa’s labour laws carefully to avoid unfair dismissal claims. Understanding when a dismissal is lawful, how contracts influence the process, and what the courts have ruled on the matter is crucial for compliance.
Previous case law on dismissing an employee reaching retirement age
In terms of the accepted interpretation of the law, employers who have allowed employees to work beyond the normal or agreed retirement age, could at any time thereafter terminate their services, by issuing them with a notice of dismissal – because they had reached the retirement age.
These precedents were based on Section 187(2)(b) of the LRA which means that a dismissal under these circumstances were fair if:
The retirement age was agreed upon in the employment contract – If the employment contract explicitly states a retirement age, and the employee reaches that age, the dismissal is generally considered fair, or
A company policy or industry practice determines a standard retirement age – Even if the contract does not specify a retirement age, dismissal may be justified if the employer has consistently applied a set retirement age for all employees in a particular role or industry.
If neither of these conditions applies, forcing an employee to retire could be seen as an automatically unfair dismissal.
Recent Constitutional Court judgement
In a three-way split decision, four of the nine judges of the CC upheld the above position.
Four other judges came to the opposite conclusion.
The remaining judge came to his conclusions based on different reasoning altogether.
This judgement has now resulted in confusion with no clear direction for employers.
Avoiding Disputes: Best Practices for Employers
To prevent disputes regarding retirement, employers should:
Ensure that employment contracts specify a retirement age – If not already in place, update contracts accordingly.An employer may dismiss an employee who has reached the agreed or ‘normal’ retirement age, provided that the termination takes place no later than the end of the month in which the employee reaches the agreed retirement age.
Develop and communicate a clear company retirement policy – This should align with industry norms, and employment contracts, and be consistently applied.
Handle extensions carefully – Ensure that any extensions are discussed and finalised before the employee reaches the agreed retirement age. All extensions must be in writing, clearly outlining the duration and conditions of the extension.
Ensure that the services are not terminated for any other reason – In all other cases where an employee is dismissed, the dismissal may not be based on their age. Employers must ensure that if they terminate employment relationships, that they don’t use ‘retirement age’ as a reason, if in fact the employer wants to terminate the relationship for reasons such as misconduct.
By proactively managing retirement policies, employers can ensure compliance with labour laws while maintaining fair and professional relationships with employees.
What If the Employer Wants to Extend Employment Beyond Retirement Age?
Some employees may wish to continue working beyond the agreed retirement age, and employers may be open to this. However, employers must be cautious when granting extensions. If an employee continues working beyond their agreed retirement age without a formal agreement, the employer may lose the right to enforce retirement later.
The best practice is to:
Start the discussions about possibly extending the retirement age, or entering into a consultancy agreement a few months before the employee has reached the retirement age
Clearly document the extension in writing, and ensure that the employee signs the relevant documentation to this effect
Specify that the extension is for a limited, specified period
Avoid creating the impression that employment is indefinite after reaching the original retirement age.
Need Guidance on Managing Retirement Policies?
Retirement-related dismissals require careful legal compliance to avoid costly disputes. At Chamlabour, we assist businesses in navigating complex labour laws, ensuring that employment contracts and policies align with legal requirements.
Become a Chamlabour member today and gain expert guidance on handling retirements, dismissals, and compliance matters with confidence. Contact us for assistance in structuring your workplace policies the right way!
