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Does an employment contract automatically end at the pensionable age of 65 years?

Does an employment contract automatically end at the pensionable age of 65 years?

On 12 October 2010 the European Court of Justice issued a ruling on the validity of clauses in collective bargaining agreements which contain the provision that employment contracts of employees automatically end upon their reaching the pensionable age of 65 years.

Essential for the assessment is that such a clause does not infringe upon the prohibition on age discrimination. In the Netherlandsthis prohibition was implemented pursuant to a European directive (2000/78 EC of the Council of 27 November 2000) in the Equal Treatment in Employment (Age Discrimination) Act [Wet gelijke behandeling op grond van leeftijd bij de arbeid or ‘WGBL’]. Pursuant to Article 3(c) of this Act, making distinctions is prohibited when an employment relationship is terminated.

The ECJ established in its ruling that the European directive referred to must be interpreted as such that this does not oppose automatically ending employment contracts as soon as the employee reaches the pensionable age set at 65 years if this has been agreed in a collective bargaining agreement.

The background to this is that two requirements must be met. First, the provision in the collective bargaining agreement must be objectively and reasonably justified by a legitimate goal of employment policy and labour market policy.

In addition, the means for realising this goal must be appropriate and necessary. In a specific case, the national or other court must test this.

In the case at hand, the ECJ decided that both requirements had been met. The goal in respect of a balanced distribution of employment and access to the labour market was deemed to be legitimate by the ECJ. In addition, the restriction does not go any further than is necessary for the realisation of the goals, so that the measure was considered to be appropriate and necessary.

Further, the ECJ established that the Member States were authorised to declare as being generally binding a collective bargaining agreement containing a clause in which the employment contract of employees reaching the pensionable age is terminated. The condition thereto is that the employees are not deprived of the protection against age discrimination offered to them pursuant to the European directive when performing work.

This ruling is in line with the current situation in the Netherlands. Many collective bargaining agreements contain a stipulation that an employment contract automatically (by operation of law) ends upon the employee reaching the pensionable age (usually 65 years). Whether this is valid is the subject of much discussion between employment lawyers. This discussion partially concentrates on the prohibition on discrimination, but also in part on the legal construction that the employment ends by operation of law, while an employment contract for an indefinite period exists. This latter discussion focuses in particular on paragraphs 1 and 6 of Article 667 of Book 7 of the Dutch Civil Code.

As regards this last topic of discussion, the [then] Minister of Social Affairs and Employment, Mr Piet Hein Donner, responded to Parliamentary questions that he was considering clarifying by law that an employment contract for an indefinite period can automatically end upon the employee reaching the pensionable age. He attached, however, two conditions thereto. First, a clause in which the employment contract of employees reaching the pensionable age is terminated had to be laid down in writing in the employment contract or collective employment contract. Further, the stipulation was not permitted to be in conflict with the WGBL.

Up to now, the clause in which the employment contract of employees reaching the pensionable age is terminated has no statutory basis. The question is whether this is still necessary, also in light of the present ruling. That should be noted here, since the ECJ has in this specific case first considered the legal validity of a stipulation in the ‘national regulations’, whereby the State permits Social Partners, employers and employees to terminate employment contracts at a specific, set age.

The validity of the/a clause in which the employment contract of employees reaching the pensionable age is terminated will gain public interest due to the planned increase of the pensionable age to 66 years and in the future to 67 or 68 years of age. For the time being, no legislative bill exists, as announced by the previous government.

Henk Hoving

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