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The (Awesome or Tiresome) Minimum Retirement Age Act 2012

Li Hoong considers the criticisms against the new legislation

Prior to the coming into operation of the Minimum Retirement Age Act 2012 (“MRAA”), an employer could impose any retirement age that it deemed fit in its employment contracts, subject only to the employee’s agreement upon employment. Given the unequal bargaining status between employers and employees, employers were essentially given a free rein to impose any retirement age that they deem fit. This led to some employers discriminating on the basis of gender by imposing a different retirement age for men and women.

The MRAA came into force on 1 July 2013 and introduced a minimum retirement age in Malaysia of 60 for all employees, regardless of gender. The MRAA allows the Minister of Human Resources to increase the minimum retirement age in the future. 

Unlike the Employment Act 1955, the definition of “employees” under the MRAA is very broad. It includes any person, who has entered into, and works under, a contract of service with an employer irrespective of his wages, except for the persons specified in the Schedule to the MRAA, namely:

  • Employees of the Federal Government, Government of any State, statutory bodies or local authorities whether employed on a permanent, temporary or contractual basis;
  • Probationers;
  • Apprentices;
  • Non-citizen employees;
  • Domestic servants;
  • Part-time employees whose average hours of work do not exceed 70% of the normal hours of work of full-time employees;
  • Students employed on a temporary contract basis;
  • Employees employed on a fixed term contract of service, inclusive of any extension, of not more than 24 months; and
  • Any person who has retired at the age of 55 years or above and has been re-employed subsequently.

The main effect of the MRAA is that employers and employees can no longer mutually agree that employees will retire at any age below 60. All existing retirement age clauses which provide for a retirement age that is less than 60 will be void and substituted with the retirement age of 60. Employers and employees cannot contract out of the MRAA. Any term in an employment contract which provides that the MRAA or its provisions will not apply and will be void.

Employers must bear in mind that the MRAA does not introduce a retirement age for employees who are not currently subject to any retirement age. If a contract of employment is silent as to the employee’s retirement age and it has never been the employer’s practice to retire employees at a certain age, the coming into force of the MRAA will not enable such an employer to retire the employee at the age of 60. It is therefore still vital for employers to include a clause on the applicable retirement age in their employment contracts.

When entering into fixed term employment contracts with employees who are close to the retirement age, employers should bear in mind that the MRAA applies to all fixed term employment contracts that are for a period of more than 24 months (including extensions). In the event of termination or non-renewal of such fixed term contracts, it is possible for employees to claim that the termination or non-renewal of their fixed term contracts was on the basis of their age and that there was non-compliance with the MRAA. It would therefore be prudent not to enter into fixed term contracts for a period of more than 24 months, and to ensure that there is a sufficient break following the expiry of any 24 month fixed term contract before entering into a fresh fixed term contract with an employee.


THE PERILS OF DISREGARDING THE MRAA 

If an employer contravenes the MRAA and retires an employee before the age of 60, the employer would commit an offence, and on conviction, would be liable to a fine not exceeding RM10,000.00.

An employee who is retired before the age of 60 may seek redress by making a written complaint to the Director General of Labour within 60 days of his premature retirement. The Director General will then conduct an inquiry to determine whether or not there is prima facie evidence than the complainant has been prematurely retired by the employer. If the Director General is satisfied that the complainant was prematurely retired, he may direct the employer to either:

  1. reinstate the complainant and pay all backwages from the date of premature retirement to the date of reinstatement; or
  2. pay the complainant compensation in lieu of reinstatement, not exceeding the amount of total wages of the complainant calculated from the date of premature retirement to the date that the complainant attains the age of 60.

If the Director General of Labour dismisses the complaint, the employee may either appeal to the High Court or make a representation under Section 20 of the Industrial Relations Act (“IRA”) for dismissal without just cause or excuse within 30 days of communication of the dismissal of the complaint.

If the Director General decides that the complainant was prematurely retired and makes a direction accordingly, the employee is not entitled to bring a further claim for the remedy for dismissal without just cause or excuse under the IRA. In such a case, the employer may appeal to the High Court.

If an employee has made both a complaint to the Director General of Labour and a representation under Section 20 of the IRA, the Director General will not conduct an inquiry on the complaint made by the employee.

An employer who fails to comply with the direction of the Director General of Labour on a complaint of premature retirement would commit an offence and would on conviction, be liable to a fine not exceeding RM10,000.00. In addition, the employer may be ordered by the Court to pay the employee any amount directed by the Director General to be payable.

If the employer fails to comply with such a Court order, the Court may issue a warrant to levy the employer’s property for the amount ordered to be paid by way of distress and sale of the employer’s property or a warrant issued under Section 283 of the Criminal Procedure Code that can be executed in any place within Malaysia.


AWESOME OR TIRESOME?

Detractors of the MRAA who argue that it is tiresome oft raise concerns that the introduction of the minimum retirement age of 60 will have an implication on fresh graduates or young employees who find themselves unable to enter into or progress within organisations as vacancies that would previously have been created following the retirement of older employees are delayed. In the pre-MRAA case of Sistem Penerbangan Malaysia Bhd v Kesatuan Kakitangan Eksekutif Sistem Penerbangan Malaysia [1996] 1 ILR 704, the company successfully argued in the Industrial Court that the retirement age of 55 ought to be retained as increasing the retirement age could lead to the stagnation and frustration of junior employees who cannot be promoted so long as the senior positions are not vacated by senior staff who only retire at 60. However, studies have shown that there is no evidence that increasing the employment of older persons will reduce the employment opportunities or increase the unemployment of youth (see: Gruber, Milligan, and Wise “Social Security Programs and Retirement Around the World: The Relationship to Youth Employment, Introduction and Summary” January 2009, National Bureau of Economic Research Working Paper 14647).

Some may also question why a standard minimum retirement age has been fixed by MRAA for all employees without taking into consideration various factors which the Industrial Court has stressed in Han Chiang High School v National Union of Teachers in Independent Schools [2003] 3 ILR 297, must be carefully considered when a retirement age is fixed, such as:

1.      the nature of the work assigned to the employees;

2.      the nature of the wage-structure to which they are subject;

3.      the retirement benefits and other amenities to which they are entitled;

4.      the climate of the place where they work;

5.      the age of superannuation which is fixed in comparable concerns or industries in the same region; and

6.      the existing practice prevailing in the same concern in this regard, if any.

In this respect, it should be noted that employers may apply to the Minister of Human Resources for exemption from all or any of the provisions of the MRAA and the Minister has the power to grant such exemptions to any employer or class of employers, with or without conditions. It is therefore possible for employers to raise the aforementioned factors and to seek exemption from the MRAA by, for example, arguing that the nature of the work undertaken by its employees require a certain amount of physical output, mental and physical alertness or that it may even be hazardous to the health and safety of employees to retain them beyond 55 years of age.

Although it is unfortunate, it also cannot be denied that the perception is that the productivity of older employees decline with age and employers may therefore be reluctant to embrace a minimum retirement age. Some of the disadvantages associated with older workers include inflexibility in completing tasks, reluctance to participate in training, difficulty in maintaining up–to-date skills, and unease or unwillingness to learn new technologies (see: Wood, Robertson, and Wintersgill “A Comparative Review of International Approaches to Mandatory Retirement” 2010, Department for Works and Pensions Research Report No 674). Older employees also cost more as they are likely to be earning higher salaries as compared to their younger counterparts. Employers’ healthcare costs are also likely increase with an aging workforce. 

Even if these perceived disadvantages are true, it must be remembered that the introduction of a minimum retirement age does not prevent the dismissal of such older employees on the basis of poor performance. On the contrary, organisations must inevitably benefit from making employment decisions based on its employees’ competence rather than chronological age.


CONCLUSION

Love it or loathe it, the MRAA is here to stay. Considering the genuine concern that the cost of living is rising at a pace that far exceeds the retirement savings plan of the common man on the Malaysian streets, the MRAA will undoubtedly be considered awesome by those who are not ready to retire before 60.

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