Continuous Employment After Retirement

The law on what happens after an employee reaches their retirement age but continues to perform their duties unabated is still subject to considerable debate. Another complicating factor is whether such an employee will be entitled to severance payments in terms of section 41(2) of the Basic Conditions of Employment Act 75 of 1997, as amended (“the BCEA”) for the whole period of their employment upon retrenchment or just for the period after their retirement date. The Labour Appeal Court has recently settled the debate in Barrier v Paramount Advanced Technologies (Pty) Ltd (2021) 42 ILJ 1177 (LAC). 

Written By of Cowan-Harper-Madikizela Attorneys

In this matter, Barrier commenced his employment with Paramount Advanced Technologies (“Paramount”) on 8 May 1985. His contract of employment stipulated that he would automatically retire on the last day of the month in which he turned 65 (i.e. June 2013). Notwithstanding this, Barrier continued to perform his duties after the retirement date.

During March and April 2017, Paramount engaged in a restructuring exercise. Barrier was offered and accepted a voluntary separation package (“VSP”) and his employment with Paramount terminated on 31 May 2017. The VSP included the standard clause that Barrier would be paid severance pay for every year of his employment but did not set out the calculation of that severance pay. Paramount paid Barrier severance pay only in relation to the period after his retirement date. Barrier later referred a dispute concerning the calculation of his severance pay to the Commission for Conciliation, Mediation and Arbitration (“the CCMA”). 

The CCMA found that Barrier did not retire on the agreed retirement date and that Paramount neglected to compel Barrier to retire. The CCMA furthermore found that Barrier’s employment continued uninterrupted until the date of his retrenchment. Accordingly, the CCMA found that Barrier was entitled to severance payments in respect of his entire period of employment with Paramount and thus awarded Barrier an additional 29 weeks of severance pay. 

Paramount sought to review the award in the Labour Court. The Labour Court focused on whether Barrier was entitled to severance pay after he had retired. The Labour Court found that as Barrier’s contract of employment had terminated through the effluxion of time because of his retirement, he had not been dismissed. Therefore, Barrier was not entitled to severance pay in respect of that employment period. In conclusion, the Labour Court found that Barrier was not entitled to any additional severance pay. Barrier appealed the judgment of the Labour Court. 

The Labour Appeal Court engaged in a discussion of the various principles related to severance pay. The Labour Appeal Court stated that section 42(2) of the BCEA entitles an employee to one week of severance pay for every year of continuous service with that employer. Furthermore, section 84(1) of the BCEA states that a previous period of employment with the same employer must be considered if the break between the periods of employment is less than a year. 

The Court found that the primary questions to be determined in such a scenario were (1) whether there was a ‘break’ in employment and (2) whether, considering the payments made to an employee at the end of the first period of employment, they are entitled to be paid severance for that previous period, in accordance with section 84(2) of the BCEA. 

In the circumstances, the Labour Appeal Court found that Barrier continued to work for Paramount after the agreed retirement date and thus there was no break in his employment. The effluxion of Barrier’s contract of employment due to retirement was thus irrelevant in the circumstances, taking into account section 84(1) of the BCEA. 

In conclusion, the Labour Appeal Court held that the payment of retirement benefits does not have any bearing on an employee’s entitlement to severance benefits. The Court found that only previous severance payments should be considered when determining severance pay at a later date. 

Accordingly, the Labour Appeal Court found that Barrier was entitled to be paid severance pay in relation to his entire period of employment and was thus awarded 33 weeks of severance pay. 

The case highlights the pitfalls which employers should avoid when seeking to retain employees beyond their retirement age. Employers should not allow any ambiguity to arise in relation to employees who approach retirement age and what may happen to them thereafter. Working beyond retirement age should be strictly regulated by ensuring that appropriate contractual instruments are in place and agreements are concluded to regulate the issues.

Neil Coetzer

Neil Coetzer
Head of Employment

Courtney Wingfield

Courtney Wingfield
Senior Associate of Employment

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