Does working beyond an agreed retirement age create a new employment agreement or contract?

This contentious issue was the focus of an appeal before the Labour Appeal Court (“LAC”) in the case of Motor Industry Staff Association and Another v Great South Autobody CC t/a Great South Panel Beaters (JA68/2021) [2022] ZALAC 103

The second Appellant, Mr. Landman, appealed the decision of the Labour Court (“LC”) which dismissed his unfair discrimination claim, based on his age, in terms of section 187(1)(f) of the Labour Relations Act, 66 of 1995, as amended (“LRA”). Mr. Landman was employed by the Respondent, Great South Panel Beaters from November 2007 and agreed to a retirement age of 60 years in his contract of employment.

Upon turning 60 years old in March 2018, Mr. Landman continued working for the Respondent after he reached his retirement age. The Respondent did not immediately terminate Mr. Landman’s employment hereafter and Mr. Landman continued to work for the remainder of 2018. However, on 14 January 2019, the Respondent notified Mr. Landman that his employment would terminate with effect from 12 February 2019 as he had reached the agreed retirement age of 60. Mr. Landman was thus dismissed by reason of him having reached his agreed retirement age. Mr. Landman subsequently referred an automatically unfair dismissal dispute to the LC claiming that his dismissal amounted to unfair discrimination in terms of s 187(1)(f) of the LRA, as he was dismissed due to his age.

The basis of Mr. Landman’s claim was that the Respondent could not rely on s 187(2)(b) of the LRA because a new employment contract or agreement came into effect between himself and the Respondent when he continued working after he reached his agreed retirement age. Additionally, that the effect of this (second) employment contract disallowed the Respondent from relying on and invoking the retirement clause in his (first) employment contract, which was signed when he commenced employment with the Respondent. Furthermore, that this (second) employment contract did not contain a retirement age, or at best contained a retirement age of 65 years, as per the Motor Industry Provident Fund (“the Fund”) collective agreement by virtue of his membership to the Fund. Mr. Landman thus claimed that his dismissal on 12 February 2019 was automatically unfair and constituted unfair discrimination in terms of s 187(1)(f) of the LRA. 

In accordance with s 187(1)(f) of the LRA, a dismissal is automatically unfair if the reason for the dismissal is based on any arbitrary ground, including but not limited to age. Section 187(2)(b) of the LRA does however contain a caveat in this regard and provides that dismissals based on age are fair if the employee has reached the agreed or normal retirement age for persons employed in that capacity. The LAC held that on the ordinary interpretation of the words used in s 187(2)(b) it is clear that the use of the phrase “if the employee has reached his agreed or normal retirement age” indicates that for the dismissal in terms of this section to be fair, the employee must have passed their agreed or normal retirement age. Furthermore, that 187(2)(b) does not provide a time frame within which employers should dismiss employees who have reached their agreed or normal retirement age, provided that they do so only after the retirement date. In effect, this means that employers have the right in terms of s 187(2)(b) to fairly dismiss an employee based on age, at any time after the employee has reached their agreed or normal retirement age. The LAC held that this right accrues to both employers and employees immediately after the employee’s retirement date and can be exercised at any time after this date. 

In so far as a new employment contract or agreement being created, the LAC found that s 187(2)(b) does not envisage–

  1. a new tacit employment contract coming into existence between the employer and employee (by virtue of their conduct) when the employee continues to work for their employer after reaching the agreed or normal retirement age;
  2. nor does it contemplate a tacit amendment of any existing employment contract; 
  3. render an existing employment contract to run indefinitely; or
  4. create a new retirement age applicable to the employee. 

In applying these and other factors to Mr. Landman’s case, the LAC held that there is nothing in the Parties’ conduct that suggests that a new tacit contract was entered into between the Parties, which causes Mr. Landman’s employment to run indefinitely or to at least the age of 65 years, as he averred.

It is clear from the outcome of this case that a new employment agreement or contract is not entered into between an employer and an employee when an employee continues to work beyond their retirement age. Furthermore, employers who retain the services of an employee after they have reached their agreed or normal retirement age, in the absence of an agreement between the parties which sets a new retirement age, continue to enjoy the protection afforded by s 187(2)(b) of the LRA. Such employers preserve their right to dismiss employees in terms of s 187(2)(b) at any time after an employee has reached the agreed retirement age.

Employers are however cautioned against dismissing employees in terms of s 187(2)(b) when the real reason for dismissal relates to the operational needs of the employer or to the employee’s conduct or capacity, notwithstanding the fact that an employee may have reached their agreed or normal retirement age. 

Andrea Miguel – Candidate Attorney