Employers must focus on addressing retirement following South African split judgment

The case before the Constitutional Court concerned whether the dismissal of various employees who continued working beyond their retirement age was automatically unfair under South Africa’s Labour Relations Act (LRA).  

In deciding this question, the Constitutional Court had to decide between two conflicting interpretations of the retirement age defence set out in the LRA, which essentially allows an employer to fairly dismiss an employee if they have reached the normal or agreed upon retirement age. In the first interpretation, the defence is not available when an employer allows an employee to continue working after their retirement age. In the second interpretation, the defence can be raised at any time.

This is one of the relatively rare cases concerning dismissals on the basis of retirement age. In comparison, there is a substantially more developed body of law addressing unfair dismissals for other reasons, such as misconduct, capacity or operational requirements.

The Constitutional Court did not produce a majority judgment regarding the correct interpretation of the retirement age defence. The conflicting interpretations from the various judgments highlight the challenges and uncertainties that employers will have to navigate in similar situations going forward, especially in circumstances where employers allow older employees to continue working after they have reached retirement age.

With the generally low level of retirement preparedness in South Africa, it is likely that employers will increasingly need to contend with so-called ‘unretirement’. Employers will need to do this while also participating in the national effort to address youth unemployment and retaining and transferring skills.

The Constitutional Court case serves as a reminder that employers should review and assess their retirement procedures in their employment contracts and retirement policies to manage the potential risk that comes with dismissing employees based on their age.

The case law on ‘retirement age’ defence

Section 187(1)(f) of the LRA states that the dismissal of an employee based on their age constitutes a form of unfair discrimination and will render their dismissal automatically unfair. However, section 187 (2)(b) provides an employer with a defence to this. It states that the dismissal of an employee based on their age is deemed to be fair when the employee has “…reached the normal or agreed upon retirement age for persons employed in that capacity”.

For the past 26 years, the Labour Court (LC) and Labour Appeal Court (LAC) have consistently interpreted and applied the retirement age defence set out by the LC in 1998 in the Schweitzer v Waco Distributors (Waco) case. Here, the LC developed the following three main principles:

• when an employee reaches the normal or agreed upon retirement age, any dismissal based on their age will not be automatically unfair under section 187 of the LRA;
• the dismissal can take place at any time after the employee reaches retirement age, even when they continue to work after reaching retirement age; and
• an employer is not required to follow a fair procedure before dismissing an employee who has reached retirement age.

The Constitutional Court case

The case before the Constitutional Court involved two consolidated appeals from the LAC and concerned whether the principles in the Waco case should continue to be followed. Both appeals had similar facts, in that the employees had reached the agreed or normal retirement age; had continued working after reaching retirement age; and were dismissed based on age. The employees in both cases unsuccessfully argued before the LC and LAC that their dismissals were based on their age and were automatically unfair. In the LAC and LC, the employers successfully relied on the retirement age defence in section 187(2)(b) of the LRA and the Waco case.

In the second appeal, known as the Solidarity case, the court ruled that the dismissals were automatically unfair because the employees had not reached the agreed-upon retirement age of 67 years. The court decided that the question of whether dismissals based on the retirement age defence require an employer to comply with procedural fairness did not have to be determined in this case, because the dismissals were automatically unfair.

The Constitutional Court, however, did not produce a majority judgment regarding the correct interpretation of the retirement age defence in section 187(2)(b) of the LRA or how it should be applied. Instead, there were three judgments handed down by the Constitutional Court.

The first judgment, with which three other judges concurred, decided that the retirement age defence should only be available where the employee is dismissed on the day on which they reach the normal or agreed retirement age. Where an employee continues working beyond the normal or agreed retirement age, the defence in section 186(2)(b) of the LRA should not be available.

The second judgment, authored by a single judge, reasoned that contract alone should regulate the employment relationship after an employee reaches retirement age.

The third judgment, also concurred with by three judges, found that the retirement age defence should not be restricted to a particular time period. Once an employee reaches the normal or agreed upon retirement age, they can be fairly dismissed based on their age at any time. Their approach was similar to that in the Waco case, but with the added condition that the employee must be given reasonable notice of termination. 

Practical considerations going forward

The fact that the Constitutional Court could not reach a majority on the correct interpretation of section 187 (2)(b) means that the principles in the Waco case still apply. However, it is likely that the retirement age defence will be subject to further litigation in the future in order for the courts to provide clarity regarding the nature and ambit of the defence.

Despite the possible uncertainty that may be introduced by conflicting interpretations of the three judgments issued by the Constitutional Court, employers must remain focused on addressing retirement and managing the various imperatives of introducing youth into the workforce; respecting the rights of senior employees; and the transfer of skills and knowledge.

Following the Constitutional Court case, the positions of employers and aging employees can be categorised into two main scenarios. In the first scenario, the employer holds all the cards where the contracts of employment contain an agreed or refer to a normal retirement age. In this scenario, the employer can continue to employ the employee for as long as they wish and terminate based on the retirement age by providing them with a notice of termination. The form and period of the notice of termination would be dictated by the employee’s contract of employment or the Basic Conditions of Employment Act.

The dynamics would change in the second scenario where the employee concerned has a critical skill or is still relevant to the employer’s business. In these circumstances, the employee’s hand may be strengthened. It is possible that the employee may wish to make their employment more secure by negotiating a fixed term contract or consultancy agreement

In either scenario, it is important for employers to review the retirement provisions in their employment contracts and clearly define the terms to prevent unexpected complications.