The question of how employers should treat employees working beyond a normal or agreed retirement age in South Africa has become increasingly complex, particularly in light of a December 2024 sharply divided judgment of the Constitutional Court, in a 4:1:4 split.
The dispute at the heart of this Constitutional Court case revolved around section 187(2)(b) of the Labour Relations Act 1995 (LRA). The provision protects employers who dismiss employees because they have “reached the normal or agreed retirement age,” deeming such dismissals fair rather than automatically unfair. Section 187(2)(b) enables an employer to lawfully terminate employment as soon as an employee who crosses the threshold of the normal or agreed retirement age. However, in practice, the situation has become more complicated if an employer allows the employee to continue working, or does not clearly formalise a new contract, after that age.
The first judgment by Zondo CJ, Chaskalson AJ, Mathopo J and Schippers AJ adopts a strict and narrow interpretation of section 187(2)(b). It holds that a dismissal based on age is only fair if effected on the date the employee reaches the normal or agreed retirement age, unless the employment or collective agreement specifies a different last working day (such as the last day of the month in which the retirement age is reached). If the employer allows the employee to work beyond this date and then later dismisses them on the basis of age, such dismissal would be automatically unfair. The judgment rejects the long-standing Waco approach, which permitted dismissals at any time after the retirement age had been reached.
The second judgment by Van Zyl AJ, takes a contractual and election-based approach. It agrees that Waco was wrongly decided but differs from the first judgment by holding that, upon reaching the normal or agreed retirement age, the employer is faced with an election to (1) terminate the employment, or (2) allow it to continue. This election must be exercised within a reasonable time, failing which the employer may be taken to have elected not to terminate on the basis of age. The reasonable period is not fixed and depends on the circumstances. If the employer does not act within a reasonable time, it loses the right to rely on section 187(2)(b). This approach is more flexible than the first judgment, allowing for some delay, but does not afford open-ended discretion to employers as permitted by Waco.
The third judgment by Rogers J, Dodson AJ, Kollapen J and Tshiqi J essentially upholds the Waco approach, interpreting section 187(2)(b) to mean that, once an employee has reached the normal or agreed retirement age, the employer may fairly dismiss the employee on the basis of age at any time thereafter, provided reasonable notice is given. This approach is the most permissive, granting employers broad discretion to dismiss on grounds of age after the retirement age has been reached.
Given the Court’s failure to form a binding majority, employers must proceed cautiously. Until further clarity emerges, the safest course is for employers to take positive, transparent steps at the normal or agreed retirement age. Employers who wish to extend an employee’s service beyond the normal or agreed retirement age should do so, for example, by way of a fixed-term contract that expressly states the duration of continued employment and any rights the employer may have to terminate that contract for reasons such as operational requirements. Such a contract should clearly indicate that the original employment concludes when the employee reaches retirement age, and that any subsequent employment is a new arrangement of limited duration. This approach may help employers avoid a scenario where an employee, allowed to continue working indefinitely, later claims that their age-based dismissal was automatically unfair.
If an employer neither dismisses an employee at retirement age nor enters into a new agreement, that employer could face an uphill battle to justify a subsequent dismissal based on age alone.
As it stands, the Constitutional Court’s split decision leaves South African employers in a precarious space. Although the practical recommendations above can help reduce the risk of liability for automatically unfair dismissals, further litigation may arise, prompting further judicial clarification. In the meantime, best practice calls for employers to err on the side of caution: if an employee remains at work beyond their agreed retirement age, formalise a new, fixed-term agreement that preserves the employer’s right to terminate based on operational requirements or upon expiry of the contract’s term.