We are midway through the Recovery Movement Control Order, where businesses are still in decline. Some struggling employers have turned to retiring employees as a means of managing excess manpower. It has prompted me to do a research on the lawfulness of this exercise.
Since the introduction of the Minimum Retirement Age Act 2012 (“MRAA“) in 2013, employers are only allowed to retire employees when they have attained the minimum retirement age prescribed by the Act (then 55, now 60).
Where there is a retirement clause in the contract, the situation is straightforward. However where there is no retirement clause in the contract, the exact age at which such employees can lawfully be retired is based on what the normal retirement age is for other employees holding that position in the company. Crucially, the statutory minimum age is not a mandatory retirement age.
Despite that, there are employers who are retiring employees on the basis that the retirement age of all employees is 60, there being no previous practice in the company to retire employees at that age. This misapplication of the minimum retirement age requirement is especially noticeable during Covid-19 where all forms of cost-cutting measures are being sought after. Understandably, retirement is an attractive solution as compared to i.e. retrenchment, since this form of dismissal requires no other justification than age.
The Law
Briefly, the MRAA which came into force on 1 July 2013 provides that:
- The minimum retirement age of a private sector employee is 60 years old.
- If the retirement age stipulated in the contract is 60 or above, the retirement age will be as agreed.
- If the retirement age stipulated in the contract is less than 60, that term is void and substituted by the minimum retirement age of 60. An exception is where there is an “optional retirement clause” in the collective agreement whereby the employee essentially consents to retiring before the statutory minimum age.
- An employer who retires an employee before he/she attains 60 years old may be fined up to RM10,000 for premature retirement.
(Prior to the MRAA, there was no prescribed age of retirement under the law, with it being left to contract.)
The MRAA however, does not provide for a solution in situations where the employment contract does not contain a retirement clause.
What if there is no retirement clause?
Where the employment contract does not stipulate a retirement age, the employee’s retirement age will be assessed based on what the normal retirement age is. Courts have defined “normal retirement age” as “an age at which employees in the group can reasonably expect to be compelled to retire”.
This was the position taken by the Court of Appeal in the leading case of Colgate Palmolive (M) Sdn Bhd v Yap Kok Foon & Anor Appeal [2003] 3 CLJ 9 (“Colgate”). Here, Gopal Sri Ram, JCA (as he then was) held, that an employer may retire an employee even where there is no retirement clause in the contract, without such an action amounting to dismissal without just cause or excuse.
However, he said “the court is to discover what is the reasonable expectation or understanding that the employees at the relevant time concerning the matter of the age at which they can reasonably expect to be compelled to retire.”
This is the test used by courts until today, when assessing what one’s retirement age is in the absence of a retirement clause.
Post-MRAA
After the MRAA was introduced, courts have continued to apply the “reasonable expectation test” as set out in Colgate when assessing retirement age. However, the existence of the MRAA has created (if not strengthened) the presumption that unless otherwise proven, an employer is within its right to retire its employees who have attained the minimum age of retirement. The operation of this presumption can be seen in Gill Satwant Singh v Assunta Hospital [2019] 3 ILJ 2 (“Gill”), where the Industrial court said:
“The Claimant’s contention that he cannot be retired at any point of time since there was no maximum retirement age stipulated in his contract of employment does not hold water. This was the reason why the Minimum Retirement Age Act was introduced; vis a vis to ensure that an employee has a right to remain in employment up to the time he attains the minimum retirement age. Once an employee attains the minimum retirement age of 60, it would be perfectly lawful for the employee at any time to be terminated by way of retirement, in the absence of a contractual term providing the employee’s retirement age above 60 years.”
Crucially, the court continued: “It was also argued by the Claimant that he has the legitimate expectation to carry on working as long as he wants due to the assurance made by one Mary Xavier. It is pertinent to note however that the Claimant did not adduce any evidence nor call any witnesses to prove his allegation that he was given such assurance. The burden rests on the Claimant to prove any such assurance which he has failed to discharge.”
Thus, although there is a presumption that employers have a right to retire employees at the minimum retirement age, such presumption is rebuttable by evidence that the retirement age is otherwise.
Factors that influence retirement age in the absence of a retirement clause
The sample of cases below show that in the absence of an express retirement age, courts will look at factors such as the company’s policy and practice when assessing retirement age.
Amir bin Osman & Ors v Meor Hamzah (M) Sdn Bhd [2016] 3 ILJ 1 was a case where the employment contract was silent on retirement age and there was no company policy on retirement age. The court having considered Colgate and Gill, found that the reasonable expectation test applies. It proceeded to find in favour of the employee that the company’s normal retirement age was, in fact, above 60, based on the employee’s evidence that the company continues to employ workers who are more than 60 years of age.
“The court is not satisfied that it is truly the policy of the company to have the retirement age set at 55 (now 60) in the absence of any other supporting documents like, for example, the written Company’s Guidelines or written policies.”
In Lee Hoe Choon v Fujikura Asia (M) Sdn. Bhd. [2016] ILJU 58, it was found that the employee’s retirement age was fixed at 60 years old based on a provision on a Staff Manual which states a retirement age of employees at 60 years old. The Staff Manual was binding on the employee because he had enjoyed the benefits provided in it such as hospitalization benefits and insurance.
Taken altogether, below is my summary of how a private sector employee’s retirement age is assessed, in the absence of a retirement clause:
What if the employer introduces a new retirement policy just before retiring the employee?
Since employers are in the position to impose a retirement policy for the company at any time, this is where retirement could be used as a last minute cost-cutting measure. The question is how much notice of the retirement policy is sufficient to fix the company’s retirement age as per policy?
In Yeoh Yin Ying v Saatchi & Saatchi Worldwide Sdn Bhd [2013] 2 ILJ 103, a company who had no pre-existing retirement policy in place, introduced a new retirement policy by way of email to all employees just 3 months before retiring the Claimant (employee). The court accepted that 3 months notice was sufficient for the company policy to fix a retirement age on all employees in the company. In arriving at its decision, the court was convinced by the fact that two other staffs had resigned upon the implementation of the policy and that the retirement age in the new policy i.e. 55 years old coincided with the government service retirement policy which is 55 years of age at the time. In any case, the court did accept that employers have an implied duty to inform employees of the change in retirement age and to bring the terms in the contract to the attention of the employee at the time such a term is negotiated/created.
Conclusion
Until today, there is no default age of retirement for private sector employees in Malaysia. Whilst the MRAA gives employers a right to retire an employee who has attained the age of 60, this is not a mandatory retirement age and can be challenged. The only time the MRAA fixes a retirement age is when the employment contract contains a retirement age which is less than 60.
Employers who have habitually been employing workers pass the minimum retirement age cannot assume that any employee who has attained the age of 60 can now be abruptly made to retire. Where the employment contract is silent on retirement age, any retirement policy should be brought to the attention of the employees beforehand. To eliminate these troubles, it will be prudent for all employment contracts to contain retirement clauses.