Employers should be careful of early retirements

labour-guideBy Neil Coetzer, Senior Associate, Employment Law, Benefits & Industrial Relations, Cowan-Harper Attorneys

In the recent case of ARB Electrical Wholesalers (Pty) Ltd v Hibbert (Case no. DA3/13, 21 August 2015), the Labour Appeal Court found that an employer’s decision to unilaterally retire an employee was automatically unfair and confirmed an award of 12 months compensation.

The facts of the matter were briefly as follows. The employee, Hibbert, had rejoined the employer, ARB, in 2002 at the age of 55. He had previously worked for ARB for a period of 12 years and was also one of the founding shareholders of the business. Shortly after he rejoined the company, ARB concluded an agreement with a pension fund and permitted its existing employees to choose whether they wished to join the pension fund.

All new employees would be required to join the pension fund. The pension fund rules provided that the retirement age was 60 years of age and Hibbert declined to join the pension fund as he was of the view that the period until the retirement age was not long enough to build a proper reserve with the fund.

In 2008 ARB issued notices to its employees, including Hibbert, that it would be moving its employees over to a new pension fund. In terms of the rules of the new pension fund, the retirement was still set at 60 years, but ARB was entitled to elect employees to continue past that age but not beyond the age of 65.

Due to certain problems experienced with Hibbert’s performance, ARB decided to relocate him to Nelspruit in order for him to perform optimally as he had previously lived and played rugby there. Hibbert agreed to his relocation subject to an increase in his remuneration, which was granted by ARB and he accordingly commenced work in Nelspruit on 1 August 2008. However, by November 2008 it became clear that the transfer was becoming a hindrance to ARB’s business and accordingly he was returned to his former workplace, namely Richards Bay, while retaining his increased salary and benefits.

Hibbert commenced work in Richards Bay on 1 February 2009. On 18 February 2009 he was informed by way of a letter that he would be retired by ARB in 14 months time, April 2010, upon reaching the age of 64. ARB alleged that the employee had agreed to this, but this was at all times denied by Hibbert who held the view that he would retire at the age of 65. After an unpleasant period in which the working relationship deteriorated, Hibbert was informed that although he would be retired at the end of April 2010, his last working day would be 28 February 2010.

Hibbert then referred the matter to the CCMA for conciliation and to the Labour Court for adjudication. At the Labour Court, ARB argued that the parties had agreed to April 2010 as being the retirement date and accordingly Hibbert had not been dismissed.

The Labour Court dismissed this argument on the basis that there was no evidence to substantiate it. ARB also argued that Hibbert’s failure to respond to the letter informing him of his retirement within reasonable time was evidence of this agreement.

The Labour Court again disagreed and found that the letter was essentially a fiat issued by ARB and that there was no positive duty on Hibbert to respond thereto and he was also not asked to do so in the letter. The Court found that the pension fund’s rules permitted ARB to retain employees past the age of 60, as it had done with Hibbert, but not past the age of 65.

ARB also argued that it was permitted to retire Hibbert at any point between the ages of 60 and 65 in terms of the rules. The Court however disagreed, finding that it was clear that the fund’s rules envisioned that Hibbert’s retirement age would be 65 in the absence of an agreement to retire earlier.

The Court therefore found that Hibbert had in fact been dismissed and that his dismissal was automatically unfair in terms of section 187(1)(7) of the Labour Relations Act. ARB appealed to the Labour Appeal Court but the Court agreed with the findings of the Labour Court and dismissed the appeal with costs.

Retirement is a touchy issue for employers and employees alike and can become complex if not handled correctly.

There have been recent legal developments in this area which require employers to act carefully when employing employees beyond their normal retirement date.

Failing to take notice of these developments can lead to a claim for an automatically unfair dismissal and employers would be well-advised to seek legal assistance on these issues before retaining employees beyond their normal retirement age.

For more information please contact Neil Coetzer at  ncoetzer@chlegal.co.za or (011)  783 8711 /(011) 048 3000

Article published with the kind courtesy of Cowan-Harper Attorneys www.cowanharper.co.za

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