Termination of Employment Due to Retirement

When an employee reaches retirement age and transitions from an employee to a retiree, their employment contract immediately terminates without any additional preconditions. However, this does not mean that they cannot be re-employed after retirement. Given their extensive work experience and expertise, retirees are often in demand, especially in certain fields of work. However, they do not have the opportunity for permanent (indefinite) employment. According to the legal interpretation in Supreme Court File Nos. 18832 (Vol. 6) and 47469 (Vol. 9), an employment contract made after retirement is considered to be for a definite period.

The legally stipulated retirement age is 60 years, calculated based on the birth date initially registered by the employee upon first employment. When an employee reaches the legally stipulated retirement age of 60, the law, not the employer, terminates the employment contract. Therefore, any claim raised by the employee that their employment contract was unlawfully terminated will not be accepted. In a dispute reviewed by the Cassation Bench between Appellant Ethiopian Inter-City High Bus Private Owners Association and Respondent Ato Ayalew Yirgu (File No. 31402, April 30, 2000 E.C., Vol. 6), the respondent’s argument in the first instance court and the Cassation Bench, that he should not be retired without paying his outstanding debt, was not accepted.

Indeed, it is undisputed that a claim made after reaching retirement age, arguing that one should not be retired, lacks legal support. In File No. 31402, the court based its decision on the factual premise that the respondent had reached retirement age and filed a suit arguing that he should not be retired. However, the facts stated in the appellate court’s decision are not interpreted in this manner. Therefore, for clarity, it is necessary to briefly present the case’s origin.

The respondent’s suit filed in the Federal First Instance Court stated: “While I was working as a cashier in the appellant’s office, I was found to have a cash shortage, and the office changed my job position, and I agreed to pay the outstanding Birr 13,819.36 (Thirteen Thousand Eight Hundred Nineteen Birr and Thirty-Six Cents) while working. However, the organization dismissed me from work, stating that my age was over 60 years, without allowing me to finish paying my debt as per our agreement. Therefore, I request to be reinstated to my work with payment of outstanding wages.”

The appellant, in its response, argued that there is no legal system that allows the respondent to demand reinstatement after retiring due to age limit, in accordance with the pension law and the organization’s administrative directive, and therefore, the termination of the employment contract was proper. The court rejected the claim, stating that the respondent’s argument that he should not be dismissed without paying his outstanding debt does not guarantee his continued employment in the organization. Dissatisfied with the decision, the respondent filed an appeal with the Federal High Court. The court, after hearing the arguments of both parties, criticized and reversed the lower court’s decision as follows:

“The respondent, knowing that he was retired when he was hired by the organization, started working, and then to dismiss him a second time for reaching 60 years of age is outside the scope of the law, and therefore, the dismissal is unlawful.”

When the appellate court’s decision was overturned in cassation, the court’s decision was based on a factual premise similar to that stated by the Federal First Instance Court. However, when examining the content of the appellate court’s decision, the facts are entirely different. The Federal First Instance Court and the Cassation Bench ruled as if the respondent had filed a suit arguing that he should not be retired after reaching the retirement age of 60, while the appellate court’s decision stated that the respondent was hired after retirement and should not be retired again.

If the respondent’s claim was that he should not be retired even though he had reached retirement age, then the decisions of the Federal First Instance Court and the Cassation Bench, being based on Article 24(3) of the Proclamation, have no reason to be criticized. Conversely, if the claim was as interpreted by the appellate court, that the employment contract was terminated as “retirement” after being hired subsequent to retirement, then Article 24(3) is not relevant to the case. Since there is no system for a retired employee to be retired a second time upon re-employment, the appellate court’s decision should not be criticized.

What Does “Retired” Mean?

When an employee is “retired in accordance with the relevant law,” the employment contract terminates by operation of law. This provision of Article 24(3) appears to be clear and its content distinct. A clear law does not seek interpretation but rather scrutiny. However, even if a law is drafted with utmost clarity, it does not guarantee that errors in understanding will not occur, as the source of the problem is the reader, not the text. While Article 24(3) may not possess such “exaggerated” clarity, its content is not among the most contentious provisions of labor law. So, what does “retired” mean?

The definition of “retired” raised a contentious question in Supreme Court File No. 37551 (Appellant Ato Dikamyeleh Tibebu and Respondent Arsho Medical Laboratory PLC, December 9, 2001 E.C., Vol. 8), but no undisputed answer was provided. In this file, the dispute between the parties originated from severance pay, and the manner in which the employment contract was terminated became a crucial issue to determine the appellant’s right to severance pay, requiring a preliminary resolution. The collective agreement between the respondent and the respondent’s employees allowed an employee who voluntarily resigned to receive severance pay. The appellant argued from the lower court onwards that he was entitled to severance pay under the collective agreement because he had voluntarily resigned. The respondent, on the other hand, argued that the employment contract was terminated due to the appellant’s retirement, not his resignation, and therefore, he was not entitled to the payment. The court, to assist in rendering a decision by considering the arguments of both parties, first identified the facts confirmed during the litigation process.

Accordingly, it was confirmed by the court that the appellant, after serving in Black Lion Hospital, voluntarily resigned when he reached 50 years of age and became a beneficiary of pension rights for this service. After “retiring” from this institution, he was hired by the respondent’s organization on July 19, 1989 E.C., and served for about ten years, and was “dismissed from work” on August 25, 1999 E.C., for the reason that “your age has reached retirement.”

It should be noted here that the way the facts are presented is not only intriguing but also raises questions. The phrase “…after retiring from this institution…” is not a confirmed fact in the litigation process. Nor can it be confirmed. This is because “retirement” in the present case is a legal issue, not a factual one. The key issue of the dispute is the manner in which the appellant’s employment contract was terminated. If the appellant voluntarily resigned, as he claims, he would receive severance pay under the collective agreement. Conversely, if he was retired in accordance with the relevant law, Article 2(2)(g) of Labor Affairs (Amendment) Proclamation No. 494/1998 prohibits him from receiving severance pay again because he has already received provident fund. From this perspective, the appellant’s retirement is a legal question that requires interpretation, not a factual matter to be proven by evidence.

It is not difficult to predict that if the court mixes law with facts and makes an error, its conclusion on the matter will be erroneous. The argument presented by the respondent was overlooked, as the appellant’s retirement was presumed beforehand. This can be understood from the following part of the court’s commentary:

“The argument presented by the respondent’s lawyer that the appellant was dismissed from the respondent’s organization because he reached retirement age and the law compelled him to retire, not because he wanted to resign, is unacceptable when viewed together with the fact that the appellant was hired by the respondent’s organization knowing that he was retired from Black Lion Hospital. Therefore, the appellant, after retiring and working in the respondent’s organization, resigned voluntarily, not because he reached retirement age and the law compelled him. Even if it is said that the appellant resigned from the respondent’s office because he reached retirement age, there is no reason to prohibit an employee who has reached retirement age from leaving the respondent’s organization if they wish.”

The commentary suggests that the appellant’s voluntary resignation from Black Lion Hospital and subsequent receipt of pension benefits were taken as confirmation of his retirement. However, becoming a pension beneficiary before reaching retirement age does not mean “retirement in accordance with the relevant law” in the language of Article 24(3). The decision in this file was rendered in 2001 E.C., and the pension law applicable to government employees at that time was Government Employees Pension Proclamation No. 345/1995. This Proclamation (with its amendments) was amended by Proclamation No. 424/1997 and Proclamation No. 633/2001 until it was replaced by Proclamation No. 714/2003.

Article 12(1)(c) of Proclamation No. 345/1995 stipulated that the retirement age for government employees (referred to as “retirement age” in the English version) shall be sixty years. Retirement means reaching the legally stipulated age of sixty. Neither this Proclamation nor the new Proclamation No. 714/2003, nor Private Organizations Employees Pension Proclamation No. 715/2003, has a system for an employee to retire or be dismissed due to retirement before reaching retirement age. However, an employee can become entitled to and beneficiary of pension benefits before reaching retirement age.

As stipulated in Article 12(2) of Proclamation No. 345/1995, a government employee with at least 20 years of service who terminates their service voluntarily or for a reason other than those specified in the Proclamation shall be paid a service pension until death when they reach retirement age. This type of pension entitlement is similarly stipulated in Proclamation No. 714/2003 and Proclamation No. 715/2003. However, if the employment contract was terminated after 25 years of service, the employee will have the right to receive pension benefits or payments five years before reaching retirement age.

What happens if an employee who started receiving pension payments five years before reaching retirement age is re-employed? Under the old Proclamation No. 345/1995, if the employee is re-employed in a government institution and starts receiving salary, the pension payment will be suspended. However, the service rendered until retirement age will be added to their previous service. If re-employed in a private organization, there will be no pension suspension or service aggregation. The Proclamation differentiated the effect of re-employment only if the employment occurred in a government institution. In Proclamation No. 714/2003 and Proclamation No. 715/2003, when re-employment occurs, the service until retirement age is considered as pensionable service, but the pension payment that was being received is not suspended.

If an employee reaches retirement age, their employment contract in a government institution or private organization terminates without any additional preconditions. Even in the absence of Article 24(3) of Proclamation No. 1156/2011, reaching sixty years of age means stopping work, resting from work, leaving work, and retiring with a legally acquired right. Therefore, it is possible to conclude that reaching sixty years of age terminates an employment contract based solely on the pension law. If the retirement age is sixty years, an employee retires or is dismissed from work due to retirement not before or after sixty years, but precisely at sixty.

In File No. 37551, the appellant voluntarily resigned from Black Lion Hospital after serving and reaching 50 years of age. Even if we assume he served for about 25 years in the hospital, he would start receiving pension benefits at the age of 55, according to Article 12(3) of the then-existing Proclamation No. 345/1995. If it is said that he resigned after serving for 20 years, he could receive pension benefits only when he reached the full age of sixty, according to Article 12(2) of Proclamation No. 345/1995. However, becoming entitled to pension benefits and receiving pension payments does not mean retiring or being dismissed due to retirement. The court’s confusion of retirement with pension entitlement and benefit led to an error.

Retirement by “Collective Agreement”

The legally stipulated retirement age cannot be lowered or raised by an employment contract or a collective agreement. The Cassation Bench, in Supreme Court File No. 80079 (Appellant Ato Tilahun Tachbele and Respondent Global Hotel PLC, November 19, 2005 E.C., Vol. 14), interpreted that an agreement to amend the retirement age will not be accepted by law.

The origin of the dispute was a suit filed by the appellant in the Federal First Instance Court, claiming unlawful dismissal and demanding appropriate payments. The respondent, appearing as a defendant, argued that according to Article 32.5 of the organization’s collective agreement, it was authorized to determine the respondent’s retirement age, and since the appellant had reached 55 years of age, the dismissal was proper under the collective agreement. The court ruled that the dismissal was made in accordance with the collective agreement and was lawful, and the High Court, which heard the appeal, upheld the lower court’s decision.

The appellant filed a cassation appeal, arguing that retirement age should be determined by law, not by collective agreement. The court, in rendering its decision, stated that an employment contract terminates when an employee is retired in accordance with the relevant law, and after noting that the retirement age is 60 years in both the Civil Service Employees Proclamation and Article 17(1) of Private Organizations Employees Pension Proclamation No. 715/2003, it took the stance that the Proclamation should be applied as the collective agreement does not grant greater rights than the Proclamation. It also overturned the lower courts’ decisions, stating that the termination of the employment contract was unlawful.

Retirement by “Government Decision”

In Supreme Court File No. 42906 and File No. 98099 (Appellants W/ro Dinkie Oda et al. (29 persons) and Respondent Ethiopian Pulp and Paper Share Company, June 19, 2006 E.C., Vol. 16), the Cassation Bench rendered a decision based on the presumption that there is a system for an employee who has not reached the regular retirement age to be retired by a government decision, specifically by a decision of the Council of Ministers. Is there a relevant law that grants such power to the Council of Ministers? Neither the old nor the current pension law stipulates a special circumstance where an employee is retired before reaching retirement age, although it does provide for situations where an employee becomes entitled to or a beneficiary of pension benefits before reaching retirement age.

In File No. 98099, about 29 employees claimed various payments, stating that the Council of Ministers, in accordance with Article 17 of Proclamation No. 714/2003, had decided to protect their pension rights, and therefore, the respondent had unlawfully terminated their employment contracts before they reached retirement age. The respondent, on the other hand, argued that since the applicants were dismissed with their pension rights protected by a decision of the Council of Ministers, in accordance with the Proclamation provision they cited, there was no legal basis for paying severance or compensation to an employee dismissed in this manner, and therefore, the suit should be dismissed.

The court that heard the case dismissed the suit by order, stating that it had no jurisdiction to hear the case as the applicants were governed by Proclamation No. 714/2003. The appellate court also dismissed the appeal. The Oromia Supreme Court Cassation Bench, to which the applicants filed a cassation appeal, upheld the lower court’s decision by changing its reasoning, stating that the applicants’ claim was not justiciable.

When the dispute reached the Federal Supreme Court Cassation Bench, the court took a different stance from the lower courts, ruling that the case was justiciable and fell under the jurisdiction of the regular court, and thus overturned the order. However, the overturning of the order did not result in its reversal. In the absence of a decision on the merits by the lower courts, the court’s decision on the merits, even if by result, was accepted. The Cassation Bench’s power to render decisions on matters not decided by lower courts is limited by Proclamation No. 25/88 and the Constitution. A case can be reviewed in cassation only to rectify a fundamental error of law in a final decision rendered by lower courts by examining whether such an error was committed or not and providing the appropriate legal interpretation. To provide a legal interpretation, there must first be a decision rendered by a lower court. A legal interpretation rendered by the Cassation Bench on a matter not decided by a lower court, whether correct or not in content, involves a fundamental legal error. For where there is no jurisdiction, there is no correctness.

Even assuming that the decision on the merits was erroneous, the content of the decision is also not free from error. To criticize the decision, it is first necessary to get an unambiguous answer to the fundamental question: did the Council of Ministers terminate the respondents’ employment contracts or not? The commentary states that it was not denied that the respondent had the Council of Ministers decide that the applicants should be retired in accordance with Article 17(9) of Proclamation No. 714/2003, and that the applicants also argued, admitting that the matter was decided by the Council of Ministers. However, the applicants’ claim and the respondent’s response, briefly summarized in the introduction to the decision, do not reflect what was stated in the commentary.

The applicants’ suit, stated in the introduction to the decision and which was the origin of the dispute, shows that they sought judgment for various payments, claiming that the Council of Ministers, in accordance with Article 17 of Proclamation No. 714/2003, had decided to protect their pension rights, and therefore, the respondent had unlawfully terminated their employment contracts before they reached retirement age. The respondent’s response, stating that the applicants were dismissed with their pension rights protected as decided by the Council of Ministers, and therefore, their claim was unacceptable, was noted. Was the decision made by the Council of Ministers to protect the applicants’ pension rights, or to dismiss them with their pension rights protected? We will examine the legality of the employment contract termination in light of the provisions of the Labor Proclamation by taking both alternative answers to this question.

Before that, let’s look at the power and role of the Council of Ministers under Article 19(7) of Proclamation No. 714/2003. The article reads as follows:

“…If a government institution ceases to exist; if the number of its human resources is more than required; or if an employee is dismissed in connection with privatization, and their service is not less than 25 years and their age is not less than 50 years, they shall be paid a service pension for life when decided by the Council of Ministers.” (Emphasis added)

The provision clearly shows the power and purpose of the law of the Council of Ministers, as well as what matters are decided by the Council. The Council decides only that an employee dismissed for the stated reasons, whose service is not less than 25 years and whose age is not less than 50 years, shall be paid a service pension. The dismissal precedes the Council’s decision. The Council is permitted to protect the rights of a dismissed employee in accordance with the provision, but it is not permitted or empowered to dismiss an employee who is currently working. Article 19(7) of Proclamation No. 714/2003 clearly states the reasons for which an employee is dismissed. If we view them from the perspective of Labor Proclamation No. 1156/2011, the cessation of existence of a government institution is a sufficient reason for terminating an employment contract by operation of law under Article 24(4), and if the number of human resources is more than required by the institution, the employment contract terminates with notice under Article 28 (and additionally, when the system of Article 29 is met for redundancy).

Privatization itself is not a reason for employment contract termination. Article 23(2) of the Proclamation explicitly prohibits the termination of employment contracts under the pretext of transfer of ownership. However, a government development enterprise may undergo redundancy before or after being privatized. While the legality of redundancy raises its own legal questions in light of Article 23(2), the role of the Council of Ministers in connection with privatization comes after the employment contract has been terminated for one reason or another under the Labor Proclamation. From this perspective, the phrase “retirement by the Council of Ministers” is a misplaced and confusing expression.

If the content of the Council of Ministers’ decision was merely to confirm the applicants’ pension benefit entitlement, the respondent cannot terminate the applicants’ employment contracts solely based on this decision. The Council’s decision comes after the respondent dismisses the employees, not as a sufficient reason for dismissal. Therefore, if the applicants are to be made redundant in accordance with the law, the respondent must terminate their employment contracts lawfully, by following the redundancy system laid out in the law, paying notice or notice period pay, and paying compensation due to redundancy, thereby protecting their full rights and benefits in accordance with the labor law. In the absence of this, it cannot cite the Council of Ministers’ decision as a reason for employment contract termination.

On the other hand, if the Council of Ministers ordered the termination of the applicants’ employment contracts without authority, the unlawfulness of the termination is hardly debatable. The applicants established an employment contract with the respondent, not with the Council of Ministers. Therefore, the Council’s decision is not even sufficient to be presented as a reason. Furthermore, the power granted to the Council by Article 19(7) of Proclamation No. 714/2003 is not to dismiss an employee but only to confirm the pension benefit entitlement of a dismissed employee. If this is what the law says, let’s then see what the Cassation Bench said. The part of the commentary where the applicants’ employment contracts were deemed lawful reads as follows:

“If it is confirmed that the applicants were dismissed under Article 19(7) of Proclamation No. 714/2003, there is no basis for arguing that the dismissal is unlawful under Proclamation No. 1156/2011, as long as this decision has not been changed in accordance with the system laid out in the law.”

To reiterate, the power of the Council of Ministers under Article 19(7) of Proclamation No. 714/2003, cited by the court, is for the employee to become a pension benefit beneficiary when their employment contract is terminated in accordance with the labor law for the reasons specified in the provision, not to directly terminate the contract. It must be clear that Article 19(7) of Proclamation No. 714/2003 is a provision that provides additional protection and safeguard to the employee, not a provision that facilitates the employer to “bypass” the employment contract termination system laid out in the Proclamation.