Termination of employment at retirement age

The rationale behind the introduction of this exception was to allow retirees to make way for new workers in the labour market. The underlying idea was that retirees were no longer dependent on a salary for their livelihood since they received a state pension. With the current shortage on the labour market, it can be attractive for employers to retain or hire employees after their retirement age. In light of a recent ruling, the following summarises the most relevant rules on retaining and employing retirees.

Pension clause and termination of employment at retirement age

By way of derogation from usual dismissal law, there are two options for terminating the employment contract of an employee who was employed before their retirement age. These options do not apply if the employment contract starts after the employee reaches retirement age.

The law provides the employer with a once-only power to terminate the employment contract of an employee who has reached retirement age without the intervention of the courts, the Employee Insurance Agency (Uitvoeringsinstituut Werknemersverzekeringen, UWV) or the employee, which is hereinafter referred to as ‘termination of employment at retirement age’. The employer, however, is required to observe the notice period. It can give notice of dismissal after the employee has reached retirement age, in which case a notice period of one month always applies, or before retirement insofar as the employment contract ends as of the date of reaching retirement age. In the latter case, the notice period may be longer, depending on the length of time the employee has worked for the employer.

The parties can also choose to include a provision in the employment contract stipulating that the employment contract ends by operation of law when the employee reaches retirement age. The employment contract then ends automatically when the employee reaches retirement age. This option is common in practice and is referred to as the ‘pension clause’.

Ruling

But what if an employee who has an employment contract, that includes a pension clause, continues to work after reaching retirement age? Case law is divided on this issue.

In the ruling, the employee had been employed by the employer since 2 March 2015 for an indefinite period. His employment contract contained a pension clause. The employment contract ended on 31 July 2017, but the parties agreed on a new employment contract with effect from 1 August 2017. This contract did not have an explicit pension clause, but such a clause did ensue from the applicable collective labour agreement (collectieve arbeidsovereenkomst, CAO).

After reaching retirement age in 2017, the employee continued to work. In 2023, the employer exercised its power to terminate his employment subject to the retirement age clause. The court ruled that termination of employment at retirement age was justified, since a retirement clause would not be an obstacle to the termination of employment at retirement age.

Rightly so?

The question is whether this ruling by the Zeeland-West Brabant subdistrict court was the right one. Case law is divided on this issue. After all, when a pension clause applies and the employee continues working after reaching retirement age, a new employment contract is tacitly created under the same conditions. Since this employment contract was concluded after the employee reached retirement age, it is no longer legally possible to validly terminate the employment at retirement age.

On the other hand, it can be argued that the pension clause terminating employment by operation of law due to reaching retirement age, is not a termination and therefore the termination option remains open. The latter would mean that even when there is a pension clause in the employment contract, one can continue to use the employment termination at retirement age clause.

In the absence of a Supreme Court ruling on the issue, it is advisable not to include a pension clause in the employment contract.

Zeeland-West Brabant District Court 9 June 2023, ECLI (abbreviated):4233

Notice period

When an employer wants to use its power to terminate an employee’s employment contract due to their retirement age, it can do so either on the day the employee reaches retirement age or afterwards. In both cases, the employer must observe the notice period.

On the date

The notice period the employer must observe if it wants the employment contract to come to an end on the date of reaching retirement age depends on the number of years the employee has worked for the employer. Essentially, the usual statutory or valid contractual notice period applies. This means that the employer must give timely notice of termination.

And afterwards

If the employer terminates the employment contract because the employee has reached retirement age after the employee has reached retirement age, then a notice period of one month applies and the employer must give notice by the end of the month. For example, if the employer gives notice of dismissal on 20 August 2023, then the employment contract can end no earlier than 1 October 2023, taking into account the notice period.

In both cases, the employer does not owe the employee a transition compensation payment.

More information

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