In practice, an employment contract for an indefinite period often provides that the contract will terminate automatically, without notice being required, on the last day of the month in which the employee turns 65. Such a provision is sometimes called a "pension-triggered termination clause". Can employers really be certain that an employment contract containing such a clause will in fact terminate automatically when the employee reaches the legal pensionable age? In 2008 a subdistrict court held that such a clause did not cause the contract to terminate automatically. And what is the situation with respect to employment contracts which do not contain such a clause?

Equal treatment?

The first question is whether the termination of an employment contract on the grounds of the employee reaching the age of 65 violates the prohibition against age discrimination in employment. Under the Dutch Equal Employment Opportunities (Age Discrimination) Act (Wet gelijke behandeling op grond van leeftijd bij de arbeid, the "Equal Employment Opportunities Act"), in effect since 2004, a distinction based on age is objectively justified (and therefore not prohibited) if it involves the termination of an employment contract based upon the employee reaching the age at which the right to a pension arises under the General Old Age Pensions Act (Algemene Ouderdomswet). That age is currently fixed at 65. The explanatory memorandum to the Equal Employment Opportunities Act refers to the 65-year threshold as an objective criterion for which there is a high level of support in society. In addition, the 65-year cutoff is in line with Dutch social security legislation.

Absence of employer-employee agreement on termination at 65

Under the Dutch Civil Code, an employment contract terminates by operation of law upon the expiry of a period prescribed by contract, statute or custom. Some legal commentators take the position that it is customary for employees to stop working at the age of 65. In support of this they cite a Supreme Court decision of 13 January 1995, in which the court held that the rule that an employment relationship generally terminates by operation of law when the employee turns 65 is in line with legal doctrine. In contrast, others believe that this Supreme Court holding means only that a dismissal based upon the employee reaching the age of 65 is not incompatible with legal doctrine.

In practice, an increasing number of employees continue working after turning 65. However, most employees still stop before that age, although the government tries in a variety of ways to discourage this. Recently, there has been talk of increasing the pensionable age under the General Old Age Pensions Act to 67. This would affect the "objective justification" under the Equal Employment Opportunities Act for the termination of an employment contract at the age of 65 since, as noted above, such justification is linked to the pensionable age under the General Old Age Pensions Act.

Perhaps in anticipation of the above development, the Delft Subdistrict Court recently decided a case brought by a 65 year old employee whose employment contract did not provide for automatic termination at that age. Nor was the employment contract subject to a collective labour agreement. The employer argued that the employment contract terminated automatically based solely on the fact that employee had reached the pensionable age. The subdistrict court disagreed, holding that for the termination to occur automatically on the alleged ground, additional facts and circumstances indicating that this was the parties' intention had to be shown. The court did not explain what such facts and circumstances might entail, but concluded that the fact that the employee was entitled to a pension upon reaching the age of 65 did not mean that his employment contract terminated automatically at that age. This conclusion does not follow from a specific statutory provision. The subdistrict court also held that even if in the past it had been customary for employment contracts to terminate automatically when the employee reached the pensionable age, this was no longer true. The court's conclusion was based in part on the abovementioned discussions regarding the increasing of the pensionable age under the General Old Age Pensions Act to 67 years and the social developments of the past several years, whereby retirement at the age of 65 is no longer self-evident.

Existence of employer-employee agreement on termination at 65

If there is an agreement, whether in an individual contract or collective labour agreement, that the employment contract will terminate automatically when the employee turns 65, and the employee is in favour of this, a problem will not arise. This is otherwise if the employee refuses to consent to the termination. The issue is then whether the employer can invoke the provision in the employment contract or collective labour agreement – often agreed many years earlier – that the contract terminates by operation of law when the employee reaches the pensionable age.

The Amsterdam Subdistrict Court had to rule on this issue in 2008. The employer and employee had concluded an employment contract for an indefinite period which contained a pension-triggered termination clause. The subdistrict court held that an employment contract must be either for a definite period – in which case it terminates by operation of law at the end of the period – or for an indefinite period – in which case it by definition does not terminate by operation of law. According to the court, this standpoint is incompatible with the view that an employment contract for an indefinite period can terminate automatically pursuant to a pension-triggered termination clause agreed in an individual employment contract or collective labour agreement.

The Amsterdam Subdistrict Court's judgment has not been followed by other courts. Several subdistrict court judgments rendered in the same year reached the opposite conclusion i.e. that an employment contract for an indefinite period can end by operation of law pursuant to a pension-triggered termination clause in an individual employment contract or collective labour agreement. Legal commentators have varied in their response to the Amsterdam court's judgment. However, the possibility cannot be excluded that other courts will follow it in the future.

Conclusion

Under the Equal Employment Opportunities Act, the termination of an employment contract upon the employee turning 65 is not viewed as discrimination but as the result of an objectively justified age-based distinction. This does not mean, however, that an employment contract for an indefinite period terminates automatically when an employee turns 65, not even if this is provided for in the employment contract or collective labour agreement. It is therefore questionable whether – in light of, among other things, the 2008 judgment of the Amsterdam Subdistrict Court – an employer can rely on such a clause.

Employers would be well advised to clearly document any agreement reached with an employee regarding the termination of his/her employment contract upon reaching the pensionable age. If an employee has in the past signed an employment contract containing a pension-triggered termination clause, the employer should – when the employee is approaching the pensionable age – check whether he/she still intends to stop working at 65. If so, it can do no harm to lay this down in writing again. If the employee indicates that he/she does not plan to stop working at 65, the employer can, no later than on the employee's 65th birthday, request a dismissal permit from the Industrial Insurance Administration Office (UWV Werkbedrijf). To date, such a permit has always been issued (under policy rule 38) in that situation.

An extra advantage of requesting a dismissal permit is that if the employer and employee nevertheless decide to continue the employment relationship beyond the employee's 65th birthday, an employment contract for a definite period can be concluded that will terminate by operation of law at the end of the agreed period. If the employment contract is continued after the employee turns 65 without a dismissal permit having been requested or the employment contract having been rescinded by the competent subdistrict court, it will in all cases have to be ended either by obtaining a dismissal permit on grounds other than the employee having reached the age of 65 year or by filing a request for rescission with the competent subdistrict court.