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Retirement, unfair dismissal and age discrimination

14/06/2017

Section 187(1)(f) of the Labour Relations Act, 66 of 1995 (LRA) states that a dismissal will be automatically unfair if the reason for the dismissal was unfair discrimination on a range of listed grounds.  


By: P.A.K le Roux

One of these listed grounds is the age of an employee.

Since its enactment, this provision has been relied on by a steady stream of employees claiming that they have been discriminated against on the grounds of their age in the situation where their the employer has insisted that they retire. The employer has typically argued that the employee has reached the age where employees in its organisation must retire and, in seeking to enforce this view, dismissed the employee. An employee aggrieved by this decision has then relied on section 187(1)(f) and argued that the dismissal was automatically unfair.

The employer has then, in turn, sought to rely on section 187(2)(b) which provides an employer with a statutory defence against such a claim. This provision was specifically enacted to permit an employer to terminate employment on the ground that the employee must retire. However, section 187(2)(b) does not provide employers with a carte blanche in this regard. It sets certain requirements that have to be met before it can be relied upon. This contribution deals with the decisions of our Labour Courts interpreting and applying this section.
Section 187(2) reads as follows-

‘(2) Despite subsection (1)(f) (a) a dismissal may be fair if the reason for dismissal is based on an inherent requirement of the particular job;
(b) a dismissal based on age is fair if the employee has reached the normal or agreed retirement age for persons employed in that capacity.’

In Schweitzer v Waco Distributors (A Division of Voltex (Pty) Ltd (1998) 19 ILJ 1573 (LC), one of the first decisions interpreting section 187(2)(b), the Labour Court provided the following (often referred to) analysis of section 187(2)(b). In order for the defence contained therein to apply the following questions must be considered –

  • Was the employee’s dismissal based on age?
  • If the answer to the above question is in the affirmative, did the employer have a normal or agreed retirement age?
  • If the answer to the second question is in the affirmative, had the employee reached this retirement age?

Normal or agreed retirement age

By far the majority of decisions considering this section deal with the question whether the employer had a normal or agreed retirement age for its employees.

An agreement to retire at a certain age can be found in an employee’s contract of employment or in an employer’s policy, provided that the policy has contractual binding effect. In several cases an agreed retirement age has been derived from the rules of a pension or provident fund of which the employee was a member. See, for example, SA Metal & Machinery Co Ltd v Gamaroff [2010] 2 BLLR 136 (LAC), and ARB Electrical Wholesaler (Pty) Ltd v Hibbert (2015) 36 ILJ 2989 (LAC). In Coetzee v Moreesburgse Koringboere Bpk (1997) 18 ILJ 1341 (LC) the Court found that, by joining the relevant pension fund, the employee was bound by the rules of the fund as amended from time to time. The employee was therefore bound by a rule amendment that changed his retirement age. The agreement may also be an oral one - see Rockliffe v Mincom (Pty) Ltd (2008) 29 ILJ 399 (LC).

An employer is bound by this agreement and, should it seek to change an agreed retirement age, the consent of the employee to the change is necessary. Any attempt to introduce a change without consent constitutes a repudiation of the contract of employment. The same applies if the employer seeks to introduce an agreed retirement age in the situation where there is no such retirement age.

This is illustrated by the decision in Rubin Sportswear v SA Clothing & Textile Workers Union & others (2004) 25 ILJ 1671 (LAC). In this case the employees concerned had been employed by a company by the name of Val Hau et Cie (Val). Val entered into an agreement with Rubin Sportswear in terms of which the manufacturing part of its business was transferred to Rubin Sportswear. This transaction constituted a transfer of part of a business as a going concern. The employees involved with manufacturing therefore transferred to the employment of Rubin Sportswear in terms of section 197 of the LRA on the terms and conditions of employment that they enjoyed with Val. Rubin Sportswear had a normal retirement age of 60 for its employees. Val did not have an agreed or normal retirement age. By virtue of the provisions of section 197 (bolstered by a collective agreement entered into with the SA Clothing and Textile Workers Union) the employees transferred to Rubin Sportswear on the basis that they did not have an agreed or normal retirement age. After the transfer Rubin Sportswear attempted to enforce a policy in terms of which its normal retirement age would also apply to the transferred employees. This resulted in the dismissal of four employees on the basis that they had reached the normal retirement age. The employees approached the Labour Court and argued that their dismissal had been automatically unfair because the reason for their dismissal was their age. Rubin Sportswear argued that the employees had reached the agreed, alternatively the normal, retirement age. The Labour Court found that there was no agreed or normal retirement age in respect of these employees and that their dismissals had been automatically unfair.

On appeal to the Labour Appeal Court (LAC) the employer did not argue that there was an agreed retirement age; it argued, however, that there had been a normal retirement age. It was common cause that the old employer, Val, had not had an agreed or normal retirement age and that the employees were transferred to Rubin Sportswear on this basis. This then raised the question whether Rubin Sportswear had been entitled to unilaterally introduce a retirement age. The LAC held that it could not. The employees’ contracts with Val did not have a provision fixing a retirement age and Rubin Sportswear’s attempt to introduce such a term constituted a repudiation of the terms of their contracts which they were entitled to accept or reject. In this case the employees had elected not to accept the repudiation and accordingly the purported change was unlawful and of no legal effect. (This seems correct subject to the comment that it seems that Rubin Sportswear was seeking to introduce an agreed retirement age and not seeking to introduce a normal retirement age.)

The LAC also considered whether Rubin Sportswear could argue that there was a normal retirement age. After referring to definitions in dictionaries and to reported cases dealing with the meaning of the word ‘normal’ in other contexts, it came to the conclusion that the word as used in section 187(2)(b) -

‘[19] … means what it says. It means that which accords with the norm.’

The LAC also pointed out that section 187(2) (b) requires that the norm must be established with reference to employees who are employed in the same capacity. In order to rely on the defence found in the section the employer will have to show, not only that the employee had reached the normal retirement age, but that the employee had reached the retirement age normal to employees employed in the same capacity. It is conceivable that one employer could have different normal retirement ages for different categories of employees. The Court went on to state that -

‘[22] In my view a certain age cannot suddenly become a normal retirement age for employees or for a certain category of employees simply because the employer wakes up one morning and decides that he wants a certain age as the normal retirement age for his employees or for a certain category of his employees. He can put a proposal to his employees on what should be the retirement age and, if they agree, then there will be an agreed retirement age in that workplace applicable to all those who have agreed to the proposal. A retirement age that is not an agreed retirement age becomes a normal retirement age when employees have been retiring at that age over a certain long period – so long that it can be said that the norm for employees in that workplace or for employees in a particular category is to retire at a particular age. An example would be where, without any formal agreement, employees in a particular category have over 20 years been retiring at a particular age without fail. The period must be sufficiently long and the number of employees in the particular category who have retired at that age must be sufficiently large to justify saying that it is a norm for employees in that category to retire at that age. If the period is not sufficiently long but the number is large, it might still be that a norm has not been established. If the period is very long but the number of employees in the particular category who have retired at that age is not large enough, it might be difficult to prove that a norm has been established.’

See also Evans v Japanese School of Johannesburg (2006) 27 ILJ 2607 (LC).

The LAC also had occasion to consider in some detail the requirement of a normal or agreed retirement age in its subsequent decision in Cash Paymaster Services (Pty) Ltd v Browne (2006) 27 ILJ 281 (LAC). This decision also dealt with the situation where an employee had been transferred to a new employer in terms of section 197 of the LRA. When employed by his old employer the employee’s agreed retirement age had been 65. After the transfer had taken place his new employer, Cash Paymaster Services (CPS), tried to enforce a retirement age of 60 and terminated his employment on this basis when he reached the age of 60. The employee claimed that his dismissal had been automatically unfair on the basis of his age. He also argued that section 187(2) found no application because he had been retired prior to his retirement age of 65. CPS appears to have accepted that there had been an agreed retirement age of 65, but argued that the dismissal was nevertheless still fair because the normal age of retirement in the industry that the employer operated in was 60. It argued that this had the result that the dismissal fell within the ambit of section 187(2)(b) – a retirement could be fair on the basis that an employee had reached the normal retirement age even if the employee and the employer had agreed to a later date of retirement. The LAC rejected this approach in the following terms –

‘[25] There is no merit in the appellant's contention. The retirement age dispensation provided for in section 187(2)(b) of the Act is one that works on the basis that, if there is an agreed retirement age between an employer and an employee, that is the retirement age that governs the employee's employment. This is the case even when there is a different normal retirement age for employees employed in the capacity in which the employee concerned is employed. The provision relating to the normal retirement age only applies to the case where there is no agreed retirement age between the employer and the employee. [26] It would make no sense for the Act to make provision for an agreed retirement age if such an agreement would not be binding on the employer if there is a normal retirement age for employees employed in the relevant capacity. What makes sense is precisely what the law is, namely, where there is an agreed retirement age, that agreement governs the position irrespective of the existence or otherwise of a normal retirement age for employees employed in the relevant capacity. Where there is no agreed retirement age but there is a normal retirement age for employees employed in the relevant capacity, the position is governed by the normal retirement age for employees employed in that capacity’.

CPS also argued that the retirement age agreed to between the employee and the old employer fell away when the employee, after the transfer, signed a document entitled ‘Offer of Employment’ and another document entitled ‘Articles of Agreement’. CPS argued that these documents, read together, contained the terms and conditions of employment applicable to the employee and that these documents did not contain a retirement age. There was therefore no agreed retirement age. The LAC rejected this argument. It pointed out that there was no provision in either of these documents that indicated that they contained all the terms and conditions of employment applicable to the employee. There was also nothing inconsistent with the continued existence of an agreement that the age of 65 would continue to be the agreed retirement age.

In the Rubin Sportswear decision the LAC posed the question whether the normal retirement age must be established with reference to persons who are employed by the same employer or whether it may also be established with reference to the practice in a particular industry. However, the LAC did not answer this question. In the decision, the LAC appears to accept that this may occur.

In Botha v Du Toit Vrey & Partners CC (2005) 26 ILJ 2362 (LC) the Court appears to have accepted that the normal retirement age could be determined with reference to the industry in which the employee was employed. In Bos v Eon Consulting (Pty) Ltd (JS 948/14 12/8/2016) the Court accepted that ‘the norm’ can be established internally within an employer’s organisation or externally in a particular industry. It stated that, when relying on an industry norm it is ‘critical’ for the employer to present credible evidence, preferably by an expert, as to what constitutes the industry norm. A comparison with the retirement age applied by directly comparable employers in the industry ‘would also be a consideration’. Industry wide collective agreements or ‘other forms of regulation’ in that industry would also be relevant. If an employer seeks to establish a norm within its own business it must also lead evidence in this regard. This evidence could include evidence of what practice the employer has adopted in this regard, and the provisions of any policy and the rules of any relevant pension or provident fund. Because the termination of employment due to the attaining of the age of retirement is akin to the expiry of a fixed-term contract., because it leads to the termination of employment ‘without due process’ the agreement or norm must be clear and unambiguous.

Also of interest were the Court’s views with regard to employer policies regarding retirement age. It sees such a policy as ‘the easiest way of establishing a retirement age norm’. This contention can be explored in more detail. For example, if a contract of employment states that the employee must join a specified provident fund and that the employee will be bound by the rules of that fund as amended from time to time, it is submitted that in this case the employee has agreed to any retirement age that may be provided for in the rules of the fund – there is an agreed retirement age.

A more difficult issue arises in the situation where the employment contract contains a provision which states that the employees are bound by any policies that the employer may introduce and amend from time to time. In the Bos decision the Court states that an employer is, in principle, entitled to unilaterally fix and then introduce a normal retirement age by introducing a policy to this effect, provided that this cannot be done retrospectively in the sense that it cannot be applied to an employee who has passed the retirement age. The policy can also not contradict an employee’s existing conditions of employment or an agreed retirement age. This second requirement clearly limits the employer’s ability to introduce a policy in this regard. If there is no agreed retirement age an employee has a contractual right to work until such age as he or she wishes, subject to the employer’s right to dismiss on the grounds of misconduct, incapacity or operational requirements. An attempt to introduce a retirement age by way of a policy could constitute a change to existing terms and conditions of employment. This also was the view adopted by the LAC in Rubin Sportswear. The Bos decision relies on the decision in Bedderson v Sparrow Schools Education Trust (2010) 31 ILJ 1325 (LC) as authority for the view that a policy can introduce a retirement age. This is incorrect. In this decision the Court, after accepting that an employer has the right, in general terms, to introduce policies stated that –

‘[23] However, I was also of the view that the common-law right to issue such policies does not extend as far as actually changing the terms on which employment can be terminated. Generally speaking, policies must be formulated and applied within the framework of the contract which authorizes their formulation. The applicant's contract does not envisage a retirement age. The employer cannot, by introducing a policy, change this fundamental aspect of the employment relationship. Taken to its extreme, it could mean that an employer could evade potential liability for unfair dismissal by simply introducing a policy in terms of which the contract of employment of its employees would terminate automatically in certain circumstances.’

See also Bank v Finkelstein t/a Finkelstein & Associates (JS 219/15 26/10/2016) which also expresses many of the sentiments expressed in the Bos decision.

Dismissals after the retirement age

If an employer insists that an employee go on retirement when reaching the agreed or normal retirement age and actually dismisses the employee on that date this will typically fall within the ambit of section 187(2)(b). There is some authority for the view that, if an employee ceases working on this date, there is no dismissal and that therefore there can be no automatically unfair dismissal - the employment contract expires automatically through the effluxion of time. See the Coetzee and Waco Distributors decisions and Schmahmann v Concept Communications Natal (Pty) Ltd (1997) 18 ILJ 1333 (LC).

What rights to job security does an employee have if she has continued working after an agreed or normal retirement age and the employment contract or relationship continues in force? This contentious issue was considered for the first time in the Waco Distributors decision by Judge Zondo (as he then was). In this decision the parties accepted that there had been an agreed or normal retirement age of 65 that applied to the employee concerned. However, he carried on working after he reached this retirement age. Two years later he was informed that he was being retired. It was common cause that the reason for the termination of his employment was his age and was not due to any complaint about his work performance or his conduct. He referred a dispute to the Labour Court. One of his arguments was that his dismissal constituted unfair discrimination on the basis of his age.

The employer relied on section 187(2)(b) and argued that it was entitled to terminate the employee’s employment because he ‘had gone past’ the age of 65. This raised the question of how section 187(2)(b) should be interpreted. Does the defence only apply in the situation where retirement is effected on the date that the agreed or normal retirement age is attained; or does it continue to apply to terminations effected after this date as well? The Court was clearly concerned with the implications of a decision in favour of the latter approach. It commenced its discussion on this issue by stating that its initial view was that section 187(2)(b) could not apply in the situation where the employee had not only reached ,but had gone beyond, the agreed or normal retirement age. It thought that it would be unfair to dismiss an employee purely on the grounds of age in circumstances where there were no grounds to fairly terminate employment.

However, the Court went on to state that it had rejected its initial view in favour of a conclusion that the section 187(2)(b) defence remained available in the case of terminations effected after the retirement date. This was based on the argument that section 187(2)(b) refers to a ‘dismissal’.

When an employee reaches the normal or agreed retirement age the employment contract comes to an end through the effluxion of time without the employer having to do anything – there is no dismissal. Section 187(2)(b) could therefore not apply in this situation and could only apply if the employee had continued to be employed after the termination date and was dismissed after this date.

In Datt v Gunnebo Industries (Pty) Ltd (2009) 30 ILJ 2429 (LC) another judge expressed reservations about this approach but did not find it necessary to decide on the matter. However, the Labour Court has endorsed the approach adopted in the Waco Distributors decision in the Bos and Bank decisions and Rubinstein v Price’s Daelite (Pty) Ltd (2002) 23 ILJ 528 (LC). In the Rockliffe decision the Court did not refer to the Waco Distributors decision and accepted that the employee may be able to argue that, by not dismissing the employee on the retirement date, the employer had waived its right to rely on section 187(2)(b). In Karan t/a Karan Beef Feedlot v Randall (2012) 33 ILJ 2579 (LAC) the LAC had the opportunity to consider the correctness of the approach adopted in the Waco Distributors decision but did not do so. Prior to reaching his retirement age the employee in this case was sent two letters by the employer in which the employer indicated it would like to keep the employee in employment after he had reached his retirement age of 60. The letters also proposed that, if the employer decided, at a later date, that he should go on retirement it would give him the ‘normal’ notice of termination of employment. The employee did not respond to these letters but simply carried on working after he had turned 60. Some months later the employer gave him notice that he would be going on retirement. The employee argued that he had been automatically unfairly dismissed. The LAC rejected this contention. It found that the employee had tacitly agreed to work beyond his normal retirement age and to leave it to the employer to determine the retirement date. There was nothing unlawful or unfair in the agreement reached.

In the Datt decision the employer and the employee had agreed that the employee would continue in employment after reaching his retirement age until such time as the parties agreed that he would retire. A dismissal in breach of this agreement was held to be automatically unfair. See also the Bos decision. It should also be noted that section 187(2)(b) states that a dismissal is fair if the requirements of the section have been met. This can be contrasted with the formulation of section 187(2)(a) which states that a dismissal may be fair if the reason for the dismissal is an inherent requirement of the job. The consequence of this, according to the Waco Distributors decision, is that if a dismissal based on age is found not to be automatically unfair because the requirements of section 187(2) (b) had been met, there is no room for an argument that the dismissal was still nevertheless procedurally unfair. However, the Court does appear to have qualified this approach by remarking that such fair procedure as the employer may be obliged to follow in this case is a procedure aimed at giving the employee a hearing on whether the requirements set by section 187(2)(b) exist. In contrast, the Botha decision the Court accepted that procedural fairness may be a requirement.

Other fair reasons

Section 187(1)(f) prohibits unfair discrimination of the grounds of age. Section 187(2)(b) specifies one situation where the dismissal will be regarded as fair. It is important to note that there may be circumstances, probably exceptional circumstances, where an employer may be able to justify the fairness of a dismissal on the grounds of age on grounds other than that provided for in section 187(2)(b). See the discussion in Bedderson v Sparrow Schools Education Trust (2010) 31 ILJ 1325 (LC).

Other unfair dismissals

It is, of course, open to an employer to defend an age discrimination claim by denying that the reason for the dismissal was the age of the employee and by arguing that the dismissal was for some other reason. However, this is not the end of the employer’s problems. It may be able to avoid a finding that the dismissal was automatically unfair; but it may still be necessary, if the employee pleads this, to defend a claim that the dismissal was unfair. The employer will have to show that the dismissal was related to the employee’s conduct or incapacity or the employer’s operational requirements and that a fair procedure was followed prior to the dismissal.

The Employment Equity Act

In the Waco Distributors decision the Court accepted that its interpretation of section 187 (2)(b) had far-reaching implications but felt that its interpretation was justified on the wording of the section. It went on to speculate that there may have been social policy reasons for the way in which the section was formulated. This included the creation of job opportunities for younger members of society.

But this raises the interesting question whether the same policy considerations would apply to another claim that an employee who is dismissed because of her age after she has reached her normal or agreed retirement age could bring – namely a claim based on an allegation of unfair discrimination in terms of the Employment Equity Act, 55 of 1998 (EEA).

The courts have accepted that a dismissed employee may bring such a claim independently, or together with, a claim based on an allegation of an automatically unfair dismissal. See, for example, ARB Electrical Wholesaler (Pty) Ltd v Hibbert (2015) 36 ILJ 2989 (LAC) and the Bedderson decision. But the EEA does not provide for a defence equivalent to that provided in section 187(2) (b). However, the EEA only prohibits unfair discrimination and it is possible to argue that dismissals after the attainment of the agreed or normal retirement age in the circumstances set out in section 187(2)(b) would be regarded as fair in terms of the EEA.

This issue was considered in Hospersa obo Venter v SA Nursing Council (2006) 27 ILJ 1143 (LC). The conditions of employment on which the dismissed employee in this case was initially employed provided that her retirement age was 70. The employer then attempted to unilaterally enforce a new retirement age of 60 and dismissed her on the basis that she had passed this age. The employee then referred a dispute to the Labour Court. However, she did not claim that she had been automatically unfairly dismissed as envisaged in the LRA but claimed that she had been unfairly discriminated against as envisaged in the EEA. The Court stated that the principles encapsulated in s 187 of the Labour Relations Act provided guidance in the handling of allegations of discrimination based on age.

It found that the employer had discriminated on the basis of age when it dismissed the employee and that the employer had not been able to justify the fairness of the dismissal – this on the basis that the employee had not reached her agreed retirement age of 70.

Remedies

Section 193 of the LRA provides that an employer can be ordered to reinstate or reemploy an automatically unfairly dismissed employee. Alternatively, she may be awarded such compensation as is ‘just and equitable’. However section 24 limits the compensation payable to an amount equivalent to 24 months’ remuneration. Section 50 of the EEA makes provision for a wider range of remedies but also makes provision for the payment of compensation. It also provides that orders for damages may be made. In the ARB Electrical decision the LAC dealt with question of how to determine what amount of compensation should be paid in some detail.

The most important point made for the purposes of this contribution is that, when determining the amount of compensation to be paid the arbitrator should issue a single award of compensation. The employer may not be penalised twice. Interestingly, the EEA does not set a limit on the amount of compensation that may be ordered to be paid. The result is that if separate claims are brought in terms of the EEA and the LRA it is possible that the compensation ordered to be paid could exceed the 24 months’ remuneration cap set by the LRA. In order to succeed with a claim for damages the employee will have to show that she has suffered loss and the extent of that loss.