Some notes for enterprises when employing elderly employees

The employment of elderly employees is currently being utilized by many enterprises, especially for occupations that require skills, experience, prudence. These are aspects where they are somewhat more advantageous over the younger ones. Clause 1 Article 148 of Labor Code 2019 stipulates that an elderly employee is a person who continues working after the age of retirement as prescribed by law[1]. With the special characteristics of age, Labor Law also has special regulations that enterprises must comply with when employing elderly employees[2]. In particular, the regulations on conclusion and termination of employment contracts with the elderly employees are always in the concern of many enterprises. In this article, HM&P will provide enterprises with some notable information related to the conclusion and termination of employment contracts with this special type of employees.

1. When the employee is under the retirement age

The Labor Code 2019 stipulates that both enterprises and employees have the right to unilaterally terminate the employment contracts when the employees reach the retirement age, unless otherwise agreed by the parties[3]. It is clear that the termination of employment contracts when the employees reach the retirement age only occurs when the enterprises or employees use the right to unilaterally terminate such contracts, in other words, the employment contracts do not automatically terminate itself. If the enterprises want to unilaterally terminate the employment contracts when the employees reach the retirement age, they must still comply with the notice period as prescribed. Therefore, in case of enterprises employing employees who nearly reach the retirement age and the employment contracts between them have just expired (only applicable to a fixed-term employment contracts), the enterprises should consider whether or not to continue to conclude the employment contracts and the type of contracts to conclude. Due to enterprises’ obligation to notice as above, when the employees reach the retirement age, the employees will have the right to unilaterally terminate the employment contracts without noticing the enterprises, which may affect the operation plan of the enterprises.

2. When the employees reach the retirement age

The time when the employees reach the retirement age marks a change in the labor relations between the enterprises and the employees, specifically, from this point forward, if the employees continue to work, the enterprises will be considered as employing elderly employees. Therefore, when the employees are nearly reaching the retirement age, enterprises should discuss with the employees in advance about the employees’ plan to continue working, meanwhile, consider their ability to continue employing elderly employees in the long term.

a. If enterprises wish to continue employing employees when they reach the retirement age

As mentioned above, the Labor Code 2019 allows both enterprises and employees to have the right to unilaterally terminate the employment contracts when the employees reach retirement age, unless otherwise agreed by the parties. 

Assumption 1: The enterprises unilaterally terminate the existing employment contracts to conclude a new employment contracts

In this case, the enterprises have the right to unilaterally terminate the existing employment contracts with the employees after noticing beforehand with the period prescribed by law[4]. Afterwards, the enterprises and employees will conclude new employment contracts since the time employees reach retirement age.

According to the provisions of  Clause 1 Article 149 of the Labor Code 2019, when employing elderly employees, the two parties may agree on the conclusion of multiple consecutive fixed-term employment contracts. According to this regulation, when the employees reach retirement age, enterprises can conclude multiple consecutive fixed-term employment contracts with the employees, this is not a normality because except for this case, enterprises and employees can only conclude fixed-term employment contracts up to two (02) times consecutively[5]. However, the question is whether or not enterprises have the right to conclude indefinite-term employment contracts with elderly employees? In our opinion, the provisions of Clause 1 Article 149 of Labor Code 2019 do not prohibit enterprises concluding indefinite-term employment contracts with elderly employees, nor do they limit enterprises to only conclude definite-term employment contracts. Therefore, the enterprises still hold this right. Furthermore, it should be understood that the Labor Code 2019 has stipulated in the direction of creating more favorable conditions for employees in unilaterally terminating employment contracts than that of enterprises (employees have the right to unilaterally terminate employment contracts without reasons, only need to comply with the notice period, meanwhile, enterprises that wish to unilaterally terminate employment contracts must have specific basis), therefore, we reckon that the Labor Code 2019 allowing enterprises to conclude multiple definite-term employment contracts with elderly employees is partly in the enterprises’ favor in case they want to unilaterally terminate the employment contracts. If the enterprises still wish to conclude an indefinite-term employment contracts with the elderly employees, it can be considered that the enterprises have given up the right granted to them by law. Therefore, in a reasonable manner, it should be understood that the enterprises still hold the right to conclude indefinite-term employment contracts with elderly employees.

Assumption 2: The enterprises and the employees continue to perform the existing employment contracts

The Labor Code 2019 does not specify in which manner other agreements on the continuation of the employment contracts shall be implemented if the parties do not wish to use their right to unilaterally terminate the employment contracts. Because as mentioned above, the employment contracts do not automatically terminate itself when the employees reach retirement age so if the parties do not use the right to unilaterally terminate the employment contracts, the employees continue to work, the enterprises still employ the employees, and there is no notice or other agreements between the two parties, can this be considered as a “different agreement” between the parties? This issue has not been stipulated by the Labor Code 2019. Additionally, if the enterprises and the employees conclude an Annex to the employment contracts with the agreement of continuing to perform the employment contracts, will this Annex be considered to have the content of amending the duration of the employment contracts[6]?

In our opinion, in case the enterprises and the employees continue to perform the employment contracts after the employees reach retirement age, the employees’ continued work and the enterprises’ continued employment  should be considered as a “different agreement” between the parties, established by the act of the parties. Meanwhile, should the enterprises and employees conclude an Annex to the employment contracts on the continuation of the performance of the employment contracts, this Annex shall not be considered as an amendment to the duration of the employment contracts, because the agreement itself does not change the duration of the employment contracts, it is only for the purpose of self-elimination of the parties’ right to unilaterally terminate the employment contracts when the employees reach retirement age.

Therefore, enterprises can continue performing the existing employment contracts in one of the above two cases.

b. If enterprises do not wish to continue employing the employees when they reach retirement age

In this case, the Labor Code 2019 has allowed enterprises to unilaterally terminate the employment contracts with the employees when they reach retirement age without depending on the will and wishes of the employees, as long as enterprises comply with the notice period. Thus, enterprises need to carefully review the employment documents of the group of employees who are just under the retirement age, to ensure compliance with the notice period before unilaterally terminating the employment contracts.

3. During the employment period of elderly employees

During the period of employing elderly employees, a question that many enterprises ask is if they want to unilaterally terminate employment contracts with elderly employees, in which manner should it be conducted?

This is an understandable wish of enterprises since elderly employees are a workforce that is not only easily vulnerable to health factors but also the productivity and quality of work can partly be affected by old age. However, enterprises should note that, during the period of employing elderly employees, the period when they can unilaterally terminate the employment contracts when the employees reach retirement age has passed. Since enterprises have waived the right to unilaterally terminate the employment contracts when the employees reach retirement age and continued to employ the elderly employees, therefore, during this period, the unilaterally termination of employment contracts must comply with other basis specified in Clause 1 Article 36 of Labor Code 2019. If enterprises use the sole reason that the elderly employees are old enough to retire to unilaterally terminate the employment contracts, this shall be considered as an act of illegal unilateral termination of employment contracts.

Returning to Assumption 1, it can be inferred that the Labor Code 2019 stipulating that enterprises have the right to conclude multiple definite-term employment contracts with elderly employees is for a reason, if the elderly employees do not meet the job requirements set by the enterprises, but the enterprises do not have enough basis to unilaterally terminate the employment contracts, enterprises can wait until the employment contracts expires. However, if enterprises choose to conclude indefinite-term employment contracts, the enterprises will lose the advantage that the Labor Code 2019 brings, in other words, the enterprises have lost an important basis to terminate the employment contracts. Whereas on the part of elderly employees, if they conclude an indefinite-term employment contracts, they only have to comply with the notice period if they wish to unilaterally terminate the employment contracts[7].

This is also similar with the case of the enterprises continuing to perform the previously concluded indefinite-term employment contracts for the period after the employees reach retirement age as in Assumption 2.

Therefore, this can be considered as an adverse effect for enterprises if they conclude indefinite-term employment contracts when the employees reach retirement age and or nearly reach retirement age (if the enterprises wish to continue performing these employment contracts for the period after the employees reach retirement age).

In conclusion, in our experience, to limit possible adversity, enterprises should manage employment contracts when the employees nearly reach retirement age, they can refer to the manner of handling existing employment contracts in one of the following cases:

Firstly, If the existing employment contracts are definite-term employment contracts:

The enterprises have the right to choose to unilaterally terminate the employment contracts when the employees reach retirement age or not, because, with any option, they still have basis for termination that is when the contracts expire.

Secondly, If the existing employment contracts are indefinite-term employment contracts:

Whether enterprises wish to continue employing elderly employees or not, enterprises should use the right to unilaterally terminate the existing labor contracts when the employees reach retirement age, because, after that moment, the basis of the employees reaching the retirement age for the enterprises to unilaterally terminate the employment contracts will be invalid.

Thirdly, If the existing employment contracts have been terminated and enterprises want to continue employing elderly employees, enterprises should only sign definite-term employment contracts with elderly employees to take advantage of the benefits that the Labor Code 2019 has for them.

It can be seen that proper control from the beginning of the process of conclusion and termination of employment contracts with elderly employees is crucial for enterprises, this can help enterprises take advantage of the benefits when using this specific type of workforce, meanwhile, ensuring compliance with the provisions of the law, eliminating potential risks and avoiding putting enterprises in adverse situations in labor relations.