Just when we thought the law on dismissal after retirement was clear, the Constitutional Court (CC) befuddled the issue with a three-way split decision. Where does this leave employers?

The settled law

In terms of section 187(1)(f) of the Labour Relations Act (LRA), dismissal of an employee on the basis of age is ‘automatically unfair’. However, section 187(2)(b) provides for an exception: dismissal based on age is fair if the employee has reached the normal or agreed retirement age for persons employed in that capacity.

Until the recent judgments of the Constitutional Court (CC) in Motor Industry Staff Association and Another v Great South Autobody CC t/a Great South Panelbeaters and Solidarity obo Strydom and Others v State Information Technology Agency SOC Limited, the legal position with regard to dismissal of employees who have reached the agreed or “normal” retirement age and are allowed to continue working beyond their retirement age, seemed settled: Their employer may at any time serve them with notice of dismissal on the basis of them having reached their retirement age, provided this is the only reason for dismissal. If the reason is, e.g. redundancy or misconduct, the termination must be treated as an ordinary dismissal subject to the Code of Good Practice: Dismissal. This position was confirmed by the Labour Appeal Court in Solidarity obo Strydom v State Information Technology Agency (see https://labourwise.co.za/labour-articles/dismissal-after-reaching-retirement-age) as well as in Landman v Great South Autobody CC t/a Great South Panelbeaters.

The facts

In Landman, the employee was permitted to work beyond his retirement age of 60 before being dismissed on notice based on his age. In Solidarity, the employees were allowed to work beyond their contractual retirement age of 60 before being dismissed. However, relying on a different retirement age provided for in the relevant retirement fund rules (67), they argued that their dismissals based on age before having reached this age were automatically unfair.

The decisions of the Constitutional Court

The Landman and Solidarity cases were consolidated and decided on together by the CC, which resulted in a 4-4-1 split decision. Four judges (including the Chief Justice) concluded that previous decisions that permitted dismissal beyond retirement age – i.e. the “settled” law – were wrongly decided. They held that a dismissal based on age is fair only if the employee’s employment is terminated on the actual date upon which the employee attains his or her normal or agreed retirement age, unless an agreement provides that their last working day or retirement date will be the last day of the month. A termination based on age at a later date is automatically unfair. Based on this reasoning, they found Mr Landman’s dismissal to have been automatically unfair as he had been allowed to continue working beyond his retirement age of 60 and therefore could not be dismissed based on age. The dismissals of the employees in Solidarity were also found to have been automatically unfair because they had been dismissed before reaching the age of 67 as provided for in their retirement fund rules.

Four other judges held that, in terms of the provisions of the law as it stood at the time (the “settled” law), an employer may dismiss someone on the basis of having reached their retirement age, either on the date they reached that age or any later date, provided reasonable (or agreed) notice has been given and provided further that there is no evidence to suggest that the employer has waived the right to dismiss on the basis of age. Although it was not necessary to decide the point, the judges suggested that, for the sake of according the employee some dignity, he or she should be heard before the decision to dismiss is finalised. Based on this reasoning, Landman’s dismissal was found not to constitute an automatically unfair dismissal. Those of the Solidarity employees did constitute automatically unfair dismissals, given that they had been dismissed prematurely.

In a separate opinion, the remaining judge relied on principles of the law of contract to conclude that an employer is given a choice when an employee reaches their retirement age: it may end the contract on the basis that it has expired by reason of age or elect to continue with it. In the former case, the termination will not be automatically unfair. If the contract is allowed to continue, termination on the basis of age is no longer allowed but must then comply with the normal rules regarding fair dismissals (e.g. for misconduct or incapacity). He found that none of the employees had been dismissed in an automatically unfair manner.

Making sense of the legal position

While most of the judges decided that the dismissals of the Solidarity employees were automatically unfair whereas Landman’s was not, they did so for vastly different reasons. It is unfortunate that the Court has upset what had become the accepted norm when it comes to termination of employees who have reached retirement age. While the CC judgement provides interesting reading for legal scholars, it has unfortunately created widespread confusion with no clear direction for employers. As we read the judgments, the “safer” perspective is as follows:

• An employer may dismiss an employee who has reached the agreed or ‘normal’ retirement age provided this takes place no later than the end of the month in which they reach this age, provided that this is the reason for the dismissal.
• An employer may allow employees to continue working beyond this age if there is an individual or collective agreement that permits it, in which case the termination also must happen with effect from the end of the month in which they reach this new retirement age. Again, this must be the reason for the dismissal.
• In all other cases of dismissal of an employee beyond their retirement age, the dismissal may not be based on their age, but must be for a fair reason and in compliance with a fair procedure.

What should employers do?

From a practical point of view, we recommend that employers adopt the following approach:

• Ensure, as far as is reasonably practicable, that all contracts of employment provide for an agreed retirement age; e.g. “… at the end of the month in which the employee reaches the age of x.”
• Engage with employees well in advance to remind them of the approaching retirement date and associated consequences, such as handing over, administrative arrangements surrounding retirement benefits, etc.
• Do not permit an employee to work beyond the normal or agreed retirement age, unless you have entered into a written agreement that specifies a ‘new’ retirement date.
• Ensure that the normal guidelines for substantive and procedural fairness are followed if the employee is dismissed for any reason other than age (e.g. misconduct, incapacity or operational requirements).

Writtenby Barney Jordaan & Jan Truter for www.labourwise.co.za