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Court finds employee deemed to have retired under the employment contract

In Hong Kong, there is no statutory retirement age but often an employer would still agree on a retirement age with the employee in the employment contract. In a recent case, the court considered the effect of a retirement age clause in the employment contract in connection with a purported resignation by the employee.

In FWD Life Insurance v Cheng Wing Yiu Dumas, the defendant was employed by the plaintiff. The employment contract contained a clause which inter alia provided that the contract would terminate in the event of retirement and that retirement would be deemed to occur on the 31st of December coincident with or next following the defendant’s attainment of the age of 60 (or such other age as may be agreed by the parties) (“Retirement Clause”). During the employment, the defendant also participated in the plaintiff’s long service bonus plan (“Plan”). The 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. 

When the defendant’s employment with the plaintiff came to an end, the plaintiff sued for various sums guaranteed by the defendant. The defendant counterclaimed that he was entitled to be paid his accrued benefits under the Plan and that those benefits could be used to offset the amount he owed to the plaintiff.

There was a dispute as to whether the defendant was entitled to payment under the Plan. The reason was because sometime after the 31st of December which followed the defendant’s 60th birthday, the defendant purported to resign from employment. The case for the plaintiff was that the defendant did not retire but had resigned. The case for the defendant was that he had retired and was therefore entitled to his accrued benefits under the Plan.

The court started by examining the Retirement Clause. It adopted a plain reading approach and held that the Retirement Clause had the effect of saying the arrival of the 31st of December which followed the defendant’s attainment of the age of 60 had the consequence of termination of employment by retirement of the defendant.

Therefore, by virtue of the Retirement Clause, the defendant was deemed to have retired on the 31st of December that followed his 60th birthday and as a result, his employment also terminated on that date.

It followed that since the defendant had already retired and his employment had already terminated by the time he purported to resign from employment, there was nothing from which he could have resigned. Accordingly, the court held that the purported resignation was “simply meaningless” in the circumstances and basically an “empty gesture”. The defendant was therefore, entitled to all his accrued benefits under the Plan.

Practical tips for employers

If the employment contract specifies a retirement age, employers should keep track of those employees who are soon approaching their retirement age so that arrangements can be made in time to ensure the timely departure of the employees or if desired, to extend their retirement date. It would be prudent to communicate to the retiring employees in writing their effective date of termination due to retirement so that both parties have a record and refrain from providing any further duties to the retiring employees beyond this date to avoid argument of continuation of employment.

Key Contacts

Cynthia Chung

Partner | Corporate Commercial | Employment and Pensions

Email or call +852 2825 9297

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