Although many South African companies choose to keep employers on beyond retirement age, this could result in serious legal consequences.
Employment law experts at commercial law firm Cliffe Dekker Hofmeyr (CDH) recently stressed the importance of employers understanding their legal position regarding employees nearing retirement age.
CDH’s employment law director, Phetheni Nkuna, explained to Daily Investor that if an employee has contractually agreed to retire at a specific age, then the employment relationship terminates upon the employee reaching that age.
“Section 187(2)(b) of the Labour Relations Act, 66 of 1995 (LRA) recognises that a dismissal based on age is fair if the employee has reached the agreed or normal retirement age,” Nkuna said.
However, if there is no specified retirement age and the employer unilaterally sets one, forcing the employee to retire, this action is considered a dismissal.
This type of dismissal could, in some cases, constitute unfair discrimination, render the dismissal automatically unfair and entitle the employee to 24 months’ remuneration.
“That said, the courts have held that when neither a normal or agreed retirement age can be established, that does not entitle an employee to remain in employment until they choose to resign,” she explained.
In the case of Botha du Toit v Very & Partners, for example, the Labour Court ruled that 65 is the standard retirement age for the specific type of work involved. Consequently, Botha’s dismissal at the age of 65 was deemed justified.
Nkuna explained that there are several reasons for having a retirement age, which can either be agreed upon contractually or specified as the normal retirement age in a workplace policy.
“From an operational perspective, it ensures workforce and succession planning. Retirement facilitates turnover, creating opportunities for younger employees in the market to advance in their careers.”
“As time passes, a person’s health may begin to decline, or their general efficiencies and productivity decline due to ageing,” Nkuna said.
“This may often result in an employee simply not being able to cope with the pressures and demands of the workplace.”
Having a clear retirement policy helps avoid situations where employers may need to initiate incapacity proceedings if an older employee’s performance declines over time.
“Employers may also enforce retirement policies to ensure compliance with pension fund rules or collective agreements that stipulate specific retirement ages.”
However, in South Africa, many employees do not retire at the normal retirement age.
“Whilst it is common to provide for a retirement age under employment contracts or collective agreements (for specific industries). Many South Africans do not simply retire by the age of 60 or 65, as commonly believed.”
“Some studies, such as a recent study by Sanlam, have shown that the real retirement in South Africa is closer to the age of 80.”
According to Nkuna, there are two main reasons for this.
Many South Africans struggle to afford a comfortable retirement at 65 due to ongoing financial responsibilities, which is typical in a country with high levels of inequality.
At the same time, skills shortages often compel employers to retain employees well beyond their retirement age without invoking their right to dismiss on this basis.
“The disconnect between policy and reality presents significant challenges for individuals, businesses, and the broader economy,” she said.
However, keeping an employee on beyond retirement age can lead to legal consequences if employers are not careful.
What employers need to know
Nkuna explained that employers should approach retirement ages with a fair degree of caution before implementing a policy of dismissing employees well after an agreed or normal retirement age.
“If an employee is dismissed solely for reaching the normal or agreed retirement age, the employer can rely on section 187(2)(b) as a defence against claims of unfair dismissal,” she said.
However, suppose the employer allows the employee to continue working beyond retirement age for an extended period.
In that case, it may be argued that the employer has waived their right to rely on section 187(2)(b) based on the first and second interpretations of the provision.
“To avoid legal risks and workplace disputes, employers should implement clear retirement policies and communicate them effectively to employees,” Nkuna said.
“Employment contracts should specify the retirement age and any conditions under which continued employment may be considered.”
Nkuna added that succession planning is key to ensuring that the operational impact of losing an employee at retirement age is minimised and that the employer can terminate the employment relationship once the employee reaches that age.
This could either be on the day the employee reaches retirement age or shortly thereafter.
“When dismissing employees based on a retirement age, employers should provide reasonable notice to ensure procedural fairness,” Nkuna said.
“While not legally required, engaging in consultations with employees nearing retirement can help maintain good employee relations and avoid potential disputes.”
In cases where the employer wants an employee to continue working beyond retirement age, Nkuna advised terminating the original employment relationship on the basis that the employee reached retirement age and concluding a new agreement.
The new employment agreement could allow the employee to be retained as either a consultant or a fixed-term employee.
“Failure to do so could lead to a situation where the employer is deemed to have waived their right to enforce the original retirement policy,” Nkuna warned.
“Employers should also clearly communicate retirement policies in employment contracts and collective agreements.”
“Employers must also ensure that age is the sole reason for dismissal and that they are not using retirement as a pretext for terminating employees for other reasons, such as performance, misconduct or unfair discrimination on the basis of age.”