Retirement may not be as simple as it seems!

Generally a contract of employment stipulates the age at which an employee must retire.  If the contract does not specify a retirement age and the employee is unclear of the age of retirement, what steps can the employer take in order to ensure that it is not faced with an automatically unfair dismissal dispute? 

Section 187 (1)(f) of the Labour Relations Act 66 of 1995, (“the LRA”) provides that:

”A dismissal is automatically unfair if the employer, in dismissing the employee, acts contrary to section 5, or, if the reason for the dismissal is:
f)       that the employer unfairly discriminated against an employee, directly or indirectly on any arbitrary ground including, but not limited to race, gender, sex,   ethnic or social origin, colour, sexual orientation, age, disability, religion     conscience belief, political opinion, culture, language, marital status or family responsibility;”

Section 187(2)(b) of the LRA states that:

“Despite subsection (1)(f) –a dismissal based on age is fair if the employee has reached the normal or agreed retirement age for persons employed in that capacity.”

There have been decisions of the Labour Court where it was held that once an employee reaches or passes the retirement age for persons employed in the same position as he/she is, then the dismissal is fair. The court has not, however, considered whether the procedure by which the employees services were terminated was fair or not.

In a recent Labour Court case this issue came up for decision. In this matter the Applicant’s services were terminated by the employer for the reason that he had attained the retirement age of 65 years. The Applicant, an appraiser, did not agree with this and declared a dispute alleging that his dismissal was automatically unfair on the basis that he was discriminated against because of his age.   The employer argued that there was a tacit or implied agreement between the parties that the age of 65 years would be the Applicant’s retirement age. The employer further argued that a previous employee had retired at this age. 

Evidence was led by the Applicant and confirmed by the Respondent to the effect that a meeting was held with the Applicant prior to the letter, notifying him that his services were to be terminated, was delivered to him. The meeting addressed the issue that the deceased estates department of the Respondent was not doing well financially and should matters not improve, this department would have to close down.  Applicant contended that this was an ulterior motive which gave rise to his dismissal.

After hearing Respondent’s evidence, the court formed the view that the reason for the Applicant’s dismissal was not because he had reached the retirement age, but rather for reasons relating to his work performance and the Respondent’s operational requirements.  The Court then posed the following question: Should there be no agreement deciding the retirement age, does this mean that Applicant would continue to be employed by the Respondent until the Applicant terminated the agreement?    The Court answered this question in the negative.  In support of this answer the court held that the Respondent was entitled to determine the Applicant’s retirement age at the standard or normal retirement age in the sector he was working in.  On the facts of the matter the court found this age to be 65 and consistent with the normal retirement age in many of the sectors in this country where appraisers are employed. The court also stated that the decision to maintain an employee in the company’s employ falls within the managerial prerogative and is not something which can be decided by the employee.  On these grounds the court held that the dismissal was substantively fair.

The court then went on to consider procedural fairness and found the procedure to be unfair for the following reasons:
No retirement age was identified. The issue of retirement was not even discussed with the Applicant even after he had turned 65.  Applicant did not know when his services would come to an end. Some form of consultation is required and the decrees of fairness so demand.  The consultation process envisaged by the court was not that as contemplated in Section 189 of the LRA when considering retrenchments, but should involve the employer broaching the question of retirement with the employee concerned, discussing some possible retirement dates and discussing alternatives to an immediate retirement date.

Based on the above the court found that although the termination of the Applicant’s services was substantively fair, it was procedurally unfair and in the circumstances the court awarded Applicant three months’ compensation.   Employers, should, mindful of this judgment, embark on consultations prior to notifying an employee of an intention to terminate their services so as to avert similar disputes from arising.

Section 187(2)(b) of the LRA was once again the subject matter in a recent Labour Appeal Court case.  To summarise the facts of the case very briefly: The Respondent was in the employ of a company called Datakor (Pty) Ltd as a general manager for its division called Technology Application Group (TAG).  It was a term of his employment contract that his retirement age was 65.

Based on this the Respondent made arrangement for his future plans, including financial plans and made contributions to a pension scheme in terms of which he would receive a pension at that age. During April 1998 Datakor (Pty) Ltd sold TAG to the appellant as a going concern.  This entailed that the contracts of employment of the employees of TAG will then be transferred automatically to  the appellant. 

The implication of this is that the new employer steps into the shoes of the old employer in regard to the employment contract of the employees.   The appellant’s contracts of employment with its employees did not specify a retirement age.  However, appellant did have a staff manual, which included a clause to the effect that the Respondent could amend the provisions of the manual.

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