Moonstone reports that The Constitutional Court has been unable to agree over whether an employer can fairly dismiss an employee on the basis of age at any stage after the employee has passed the agreed or normal retirement age.
The issue is particularly relevant when, because of increasing longevity, employees seek to keep working beyond their agreed or normal retirement age. Some individuals find fulfilment in their careers and see no reason to stop working simply because they have turned 60 or 65, while employers may not want to lose staff with years of valuable experience. And employees have a financial incentive to keep working. They can delay relying on their pensions and continue to contribute to their retirement savings.
In South African law, the matter concerns the interpretation of section 187(1)(f) read with section 187(2)(b) of the Labour Relations Act (LRA). Although opinions differ, the tendency by the courts has been to endorse the Labour Court’s ruling in Schweitzer v Waco Distributors that an employer may fairly dismiss an employee on the basis of age at any stage after the employee has passed the agreed or normal retirement age.
For example, in September 2022, the Labour Appeal Court (LAC) cited Waco when it held that section 187(2)(b) affords an employer the right fairly to dismiss an employee based on age at any time after the employee has reached his or her agreed retirement age. Allowing an employee to work beyond the agreed retirement age does not mean the employer has waived this right (Motor Industry Staff Association and Another v Great South Autobody CC t/a Great South Panel Beaters – referred to as the Landman case.)
The decision in Waco was handed down 26 years ago by Judge Raymond Zondo within a few months of his appointment as a judge. But in a judgment delivered last month, Justice Zondo, who was South Africa’s Chief Justice from April 2022 until his retirement in August last year, said he decided Waco incorrectly.
The judgment penned by Justice Zondo was one of three judgments handed down by the Constitutional Court after hearing two cases, one of which was an appeal against the LAC’s judgment in Landman. The other was an appeal against the Labour Court’s decision in Solidarity obo Strydom & 5 Others v State Information Technology Agency SOC Ltd (referred to as Solidarity). Both cases concerned the correct interpretation of section 187(2)(b) of the LRA.
Section 187(1)(f) of the Act provides that the dismissal of an employee on the ground of age constitutes an automatically unfair dismissal. In other words, it prohibits the dismissal of an employee on the ground of age. However, section 187(2)(b) provides an exception to this prohibition: the dismissal of an employee is fair if he or she “has reached the normal or agreed retirement age for persons in that capacity”.
An “agreed” retirement age is where an employee’s retirement date is specified in the employment contract. A “normal” retirement age is where an industry or sector has a standard practice of requiring employees to retire at a particular age.
What the Constitutional Court had to decide was whether an employer who does not dismiss an employee when he or she reaches a normal or agreed retirement age but dismisses the employee after he or she has worked beyond the normal or agreed age may rely on section 187(2)(b) as a defence to a claim that the dismissal is automatically unfair. The nine justices were unable to reach a majority decision on the interpretation of section 187(2)(b).
However, the court had a majority (two of the three judgments) for orders to be made in the respective matters. The appeal against the LAC’s decision in Landman was dismissed, but the Labour Court’s decision in Solidarity was set aside, and the six dismissed employees were awarded compensation.
Section 187(2)(b) applies only to the date of retirement
The first judgment held that Waco and the cases that have followed it were wrongly decided. Justice Zondo (with Acting Justice Matthew Chaskalson, Justice Rammaka Mathopo, and Acting Justice Ashton Schippers concurring) concluded that a dismissal on the basis of age is fair only if the employee’s employment is terminated on the date upon which the employee attains his or her normal or agreed retirement age, unless the agreement or collective agreement provides that, where the employee reaches the normal or agreed retirement age on a date other than the last day of the month, his or her last working day or his or her retirement date will be the last day of the month. A termination on the basis of age at a later date is automatically unfair.
Justice Zondo said that allowing dismissals on the basis of age beyond the agreed or normal retirement date could be abused by employers, who may dismiss an employee for another reason but rely on the fact that the employee has reached the agreed retirement age to justify the dismissal. Also, section 187(2)(b) must be interpreted restrictively because it limits the right not to be unfairly discriminated against on the ground of age as entrenched in section 9(3) and (4) of the Constitution.
“The interpretation adopted in this judgment limits the period when an employer may dismiss an employee on grounds of age. There is also no room for the employer to abuse the section 187(2)(b) defence or protection. It is only available on the day that the employee reaches the agreed retirement age and on no other day. This will not cause any unfairness to employers, because an employer will be able to keep an eye on when each employee will reach the agreed retirement age and prepare for that eventuality in good time. The employee will also be able to plan his or her life properly knowing exactly when he or she will retire,” Justice Zondo said.
Within a reasonable time after retirement age
In the second judgment, Acting Justice Van Zyl held that upon an employee reaching his or her normal or agreed retirement age, the employer has an election whether to terminate the employee’s employment on the basis of age. This election is governed by ordinary contractual principles. Such a termination may take place on a date later than the employee’s normal or agreed retirement age.
However, the employer must exercise this right within a reasonable period after the employee has reached retirement age. (What constitutes “a reasonable period” for exercising this election must be determined with reference to the facts of each case.) A failure to do so may indicate that the employer has elected not to terminate the employment relationship, with the result that any subsequent dismissal must be for reasons of misconduct, incapacity, or the employer’s operational requirements.
Van Zyl AJ said section 187(2)(b) provides that for a dismissal to be fair, the employee must have attained retirement age. It does not confine the fairness of the dismissal to the date when the employee “reaches” retirement age. The suggestion in the first judgment that an employer’s failure to retire an employee on the agreed retirement age, even by a single day, must render it an automatically unfair dismissal without any enquiry into the reasonableness of the delay is inconsistent with the basic tenets of fairness.
Instead of protecting older employees at retirement, the interpretation of section 187(2)(b) in the first judgment might lead to employers dismissing employees as soon as they reach retirement age. This approach ignores whether the employee’s skills and abilities could still be valuable. Fearing claims of discrimination, employers are likely to avoid negotiating new contracts or extending retirement ages, even for a single day.
Van Zyl AJ disagreed with the first judgment’s view that allowing employers to dismiss employees after they reach retirement age could lead to abuse. As the LAC in Landman noted, employers cannot use section 187(2)(b) to dismiss employees for reasons unrelated to age.
At any stage after the normal or agreed retirement age
In the third judgment, Justice Owen Rogers (with Acting Justice Alan Dodson, Justice Jody Kollapen, and Justice Zukisa Tshiqi concurring) held that once an employee has reached his or her normal or agreed retirement age, section 187(2)(b) permits the employer, then or at any time thereafter, to terminate the employee’s appointment on the basis of age, upon reasonable notice.
Justice Rogers said if the lawmaker had intended a fair age-based dismissal to be confined to dismissal on the retirement-age date, the provision would have read: “A dismissal is fair if the employee is dismissed on the date on which he or she reaches the normal or agreed retirement age for persons employed in that capacity.”
But the wording in section 187(2)(b) is “has reached” – indicating the defence is not confined to the exact age. “The state of having reached a specified age starts on the person’s relevant birthday and continues thereafter for as long as the person lives. A person doesn’t cease to have reached her 65th birthday because she is 66 or 67.”
Justice Rogers said that permitting employers to dismiss employees who have reached their normal or agreed retirement ages, even though they are at that time still fully productive, will spare employers and employees the distress and humiliation that could accompany incapacity hearings as the employees get older.
This interpretation does not mean that employees who have gone beyond their retirement-age dates can be told to go on a moment’s notice. An employee is still entitled to reasonable notice, which will depend on the contract of employment and the circumstances of the case.
He said the implication of the first judgment is that if an employer “misses the boat” by failing to dismiss the employee on the employee’s exact retirement-age date, the employer cannot put this right by dismissing the employee at a later date. Instead, the employer must keep the person on indefinitely unless and until there are grounds for a fair dismissal based on misconduct, incapacity, or operational requirements.
The second judgment’s interpretation is likely to have the same practical effects as the first judgment’s interpretation. Employers will dismiss employees on or shortly after their retirement-age dates because any significant delay might give rise to a contention that the employer elected not to invoke its right to dismiss the employee on the basis of age.
Justice Rogers also rejected the first judgment’s view that allowing employers to dismiss employees after they reach retirement age could result in employers using age as a cover for dismissals that are really based on other grounds. “There are other circumstances, unrelated to age, in which the true basis of a dismissal may be in dispute. In such a case, the dispute has to be resolved with reference to the evidence.”
Where does this leave employers and employees?
Until the Constitutional Court is enjoined to reconsider the issue in another matter with similar facts, the legal position remains as it was following the LAC’s decision in Landman – the Waco interpretation remains good law. This means that employers are allowed to require an employee to retire at any stage after having reached the agreed or normal retirement age.
“This case and others have shown that costly disputes can arise when employers terminate the services of employees who have continued working after an agreed or normal retirement age. With the law in this area not yet settled, employers are encouraged to take steps to avoid claims,” say Talita Laubscher and Chloë Loubser of law firm Bowmans.
Laubscher and Loubser have the following advice:
Where the employee has worked past the agreed or normal retirement age, the employer may require the employee to retire, but again reasonable advance notice should be given. A period of three to six months would arguably be reasonable.
Employers should agree on a retirement age with employees, and this should be stated clearly in the employment contract. It is not always practical for an employee to retire on their exact birthday date, and it is often sensible for the employee’s services to terminate at the end of the month in which this age is reached. The contractual provision should expressly reflect this arrangement.
It is also important for employers to have systems in place that remind them when individual employees will be reaching their respective retirement dates so that the relevant steps can be taken and handover plans made timeously. Often, retirement dates come and go unnoticed, or unspoken of, by either party.
If the employer would like an employee to continue working, this should be discussed with the employee, and a new retirement date should be expressly agreed, or another suitable form of contract negotiated. If the employee is not required to continue working, the employee should be notified reasonably in advance of the upcoming retirement date.
by Mark Bechard