When retirement age cannot be used to justify dismissal of employee

IN Malaysia, many employers keep valuable employees on well past the statutory retirement age of 60. Experience, technical expertise and institutional knowledge often make this an easy business decision.

But what happens when the same employer later tries to rely on “retirement age” to justify dismissal?

A recent Industrial Court decision makes the answer clear: Once an employer has allowed an employee to continue working for years after turning 60, it cannot casually invoke retirement age as a convenient basis for termination.

In this particular case, the employee continued to serve as a project manager for several years after turning 60 with no change to his terms of employment.

However, the employer later terminated his employment on several grounds: the projects had ceased; he had already exceeded retirement age; and he had not been assigned active work for the preceding 12 months.

After issuing the termination notice, the company also raised allegations of misconduct and conflict of interest, claiming that the employee was operating a personal business in competition with the employer.

The employee subsequently challenged the dismissal as being without just cause or excuse at the Industrial Court, which ruled in his favour.

While Malaysian law sets 60 as the minimum retirement age, it does not compel employers to terminate the service of employees upon reaching that age.

More significantly, the Court found that through its own conduct, the employer had effectively waived any right to insist on retirement at 60.

The employer’s conduct pointed strongly in the opposite direction. It continued paying salary and benefits, granted salary increments and even revised the employee’s EPF contribution rate from 4% to 8% when he turned 60.

Those actions were entirely inconsistent with any suggestion that the employment relationship had ended once the employee reached retirement age.

Having continued to treat him as part of its active workforce, the employer could not later dismiss him based on age alone. It still had to establish a valid reason and comply with the proper process.

The Court also rejected the employer’s attempt to rely on allegations raised only after the termination notice had been issued. It reaffirmed that employers are generally bound by the reasons given at the time of dismissal. Fresh allegations introduced only later are often viewed as an afterthought and cannot ordinarily be used to retrospectively justify termination.

For employers, the message is straightforward. Once an employee is retained beyond 60, retirement age may no longer remain available as an easy ground for dismissal, especially where the employer’s own conduct shows a clear intention to continue the employment relationship.

Any later termination must therefore be supported by just cause and carried out with proper procedural fairness.

It is also prudent for employers to address retirement arrangements expressly through clear contractual clauses or well-defined post-retirement employment terms. Whether the employment continues on a fixed-term basis, a renewable arrangement or some other revised structure, proper documentation can reduce uncertainty and better protect the employer’s position in any future dispute.

Just as importantly, employers should ensure that all grounds for dismissal are properly investigated and clearly articulated from the outset. Attempts to introduce new reasons after termination may not only fail but may also undermine the employer’s credibility before the Industrial Court.

In dismissal disputes, substance and process matter equally.

LEONARD YEOH

Senior partner

and STELLA BEH

Associate

Tay & Partners Kuala Lumpur