December, 2016
Age is a funny thing because as we age, society assumes that we mature and grow wiser in the ways of the world, but in the workforce, age sometimes becomes just a number that is used to determine whether one should be hired, fired, promoted, or made redundant. One would like to assume that experience, effectiveness and efficiency are the factors that would be considered when an employer makes HR-related decisions, but sadly that may not always be the case.
In Hong Kong, although the Mandatory Provident Fund is compulsory up until the age of 65, there is no statutory retirement age. Parties are allowed to negotiate and allow the employment contract to govern the age in which the employee must retire from his or her employment. In the recent case of FWD Life Insurance v Cheng Wing Yiu Dumas, this very issue was examined. In particular, the court was asked to look at the effect of having a “deemed” retirement age clause in the employment contract for purposes of determining an employee’s eligibility to a payment under its long service bonus plan. The bonus plan provided that if the employment contract was terminated for any reason other than death or retirement, any accrued but unpaid benefits under the plan would be forfeited. The dispute arose when the employee resigned by email after he had already reached the contractual retirement age. The employer accepted the resignation but noted that the employee would not receive a long service bonus. The question for the court was whether the deeming provision operated to implement his retirement before he resigned (and therefore allow him to remain eligible for the long service bonus).
We spoke to Jennifer Van Dale, partner at Eversheds in Hong Kong to find out more.
Conventus Law – Can you provide a brief overview of the FWD Life Insurance v Cheng Wing Yiu Dumas case, and its relevance to the issue of mandatory retirement?
Eversheds – In the employment contract between Mr. Cheng and FWD Life Insurance, there was a clause saying that Mr. Cheng will be “deemed” to have retired on the last day of the month following his 60th birthday. He turned 60 on 17 November 2013 and was therefore deemed to have retired on 31 December 2013. Nevertheless, Mr. Cheng continued working beyond this date. He sent a resignation email on 20 January 2014. The court ruled that since the clause provided that Mr. Cheng was “deemed” to have retired on 31 December 2013, his resignation email did not have effect. Mr. Cheng wasto be regarded as having retired from his job on 31 December 2013.
The court adopted an innovative line of reasoning because it was clear from the facts that FWD Life Insurance continued to pay Mr. Cheng’s salary up until January 2014. If Mr. Cheng had retired from his job on 31 December 2013, FWD Life Insurance would not have paid him beyond this date. One possible reason for the court’s imaginative line of reasoning might have been the peculiar nature of calculating insurance commission in Hong Kong.
Relevance to mandatory retirement:
The contractual provision considered only Mr. Cheng’s age and not any other factors such as his health, qualifications or ability to find clients. The clause effectively operated as a mandatory retirement clause. Although the court had to consider the facts and circumstances to determine whether the employee had resigned or could be deemed to have retired, there was never a question as to the general validity of a clause that requires an employee to retire at a certain time.
CL – In general, what are the pros and cons to including a retirement age clause in the employment contract?
Eversheds:
Pros
Support workforce planning
A retirement age clause can help support workforce planning by encouraging experienced employees to teach others and provide promotion opportunities for younger employees.
Encouraging individual planning
A retirement age clause serves as a reality check for employees so they are aware of their retirement and hopefully will start making retirement plans earlier. The average life span in Hong Kong is nearly 82 for men and nearly 87 for women. Without an effective long term pension system, individuals must ensure that they have sufficiently planned for their old age.
Cost control
Health care costs may increase as employees age, and employer may be required to pay higher insurance premiums. In addition, the calculation of a statutory long service payment in Hong Kong is based on the number of years of work, up to a cap set by law. Having a retirement age may reduce long service payments.
Cons
Biased assumptions
A mandatory retirement age is often based on an assumption that “older” workers are less productive, less healthy and have less to contribute. This is not backed up by evidence.
Choice of arbitrary retirement age
Even where there is general evidence that age hinders performance or productivity, it does not apply to every individual. An employee could be forced to retire even if he or she is a top performer.
Lack of experienced staff
With an aging population in Hong Kong, it might be difficult to find replacements with the same level of skills and experience for retiring staff.
Reduced sense of belonging
Older employees know that they only have limited time remaining at the company and may develop a lesser sense of belonging to the company. This may affect the company’s work morale.
Inability to sustain post-retirement life
Retirement ages of 60 or 65 are based on statistics that were collected when life spans were shorter. Given the very long average life span in Hong Kong, individuals would be forced to live off their retirement payments and savings for a longer period now. It could be difficult to live comfortably after being forced to retire at a relatively young age of 60 or 65.
CL – From a business perspective, what important lessons can be learned from this case?
Eversheds – In this case, the deeming retirement provision operated against FWD Insurance. From a business perspective, FWD Insurance should have ensured consistency between Mr. Cheng’s Individual Agent’s Agreement and his Long Service Bonus contract.
If an employer has a system of mandatory retirement, the dates should be put in the diary so that actions are consistent with legal documents.
CL – What practical ways can a business avoid being in the same situation as FWD Life Insurance, but still include a retirement age clause in the employment contract?
Eversheds – If an employer has a system of mandatory retirement it should keep track of employees who are close to retirement age and make suitable written arrangements with them.
Age discrimination
CL – Even though Hong Kong does not have a mandatory retirement age, age discrimination remains an issue for aging employees. While the Labour Department in Hong Kong has provided Practical Guidelines for Employers on Eliminating Age Discrimination in Employment, does Hong Kong have any specific anti-discrimination laws that include age discrimination in the employment context?
Eversheds – No, in Hong Kong there are no specific anti-discrimination laws that include age discrimination in the employment context. The Government prefers to reduce age discrimination through education and consultation.
CL – Is there any context in which an employee may bring a viable age discrimination case against his/her employer?
Eversheds – The only way under which an employee may bring an indirect age discrimination case against his/her employer is when other forms of discrimination are also involved. For example, in Helen Tsang v Cathay Pacific, the applicant argued that it was discriminatory for female flight attendants to have an earlier contractual retirement age than that of male flight attendants. The court ruled that this differential treatment constituted sex discrimination.
Jennifer Van Dale, Partner, Eversheds
jennifervandale@eversheds.com
