The Labour Appeal Court (LAC) has ruled that an employee who worked for four years after he reached retirement age was entitled to severance pay based on his entire period of employment, not only the four years after he retired.
Werksmans Attorneys says the case is important because the court found that a break in employment of less than a year does not affect the calculation of an employee’s length of service, regardless of the reason for the break.
Background
The employee worked for Paramount Advanced Technologies for 28 years, reached the retirement age of 65 but continued to work, uninterruptedly, for a further four years.
He was voluntarily retrenched in 2017. The severance package offered one week’s remuneration for every completed year of service and one week’s salary for incomplete years of service.
The employee’s severance pay was based on his employment for the years of completed service after the date of his retirement. Paramount said he had officially retired in 2013 and therefore his years of service before that were not considered.
The employee accepted the severance package subject to the reservation that the calculation of the severance pay was incorrect.
The CCMA held there had been no break in the employee’s employment when he continued his employment after he reached retirement age, and so he was entitled to 33 weeks’ severance pay.
But the Labour Court overturned the arbitrator’s decision on review.
‘Reason for break in service not relevant’
The LAC noted that section 41(2) of the Basic Conditions of Employment Act (BCEA) is unambiguous and provides that if employees are dismissed for operational reasons, they are entitled to severance pay equal to one week’s remuneration for each completed year of service with the same employer, says Werksmans.
Although the BCEA does not define “continuous service”, section 84(1) provides that an employee’s service with the employer is considered to be “continuous” if there was a break in service of less than one year. Therefore, section 84(1) effectively provides that even if there is interruption in the course of the employment, for the purposes of determining the length of service, the break or interruption is inconsequential if it is less than one year.
“What is important to note is that the reason for any break in service is not relevant,” says Werksmans.
The LAC found that the entitlement of an employee who has had more than one period of employment with an employer to severance pay requires the application of sections 84(1) and 84(2).
- Section 84(1): “For the purposes of determining the length of an employee’s employment with an employer for any provision of this Act, previous employment with the same employer must be taken into account if the break between the periods of employment is less than one year.”
- Section 84(2): “Any payment made or any leave granted in terms of this Act to an employee contemplated by sub-section (1) during a previous period of employment must be taken into account in determining the employee’s entitlement to leave or to a payment in terms of this Act.”
Retirement benefits and severance pay
The Labour Court relied on its decision in the 2014 Rogers v Exactocraft (Pty) Ltd case when calculating the severance payment, according to Werksmans. The court held that the period before retirement should not be taken into account when calculating severance pay. An employee who received (or was entitled to receive) retirement benefits could not also obtain severance pay.
But the LAC did not agree with the Labour Court’s reliance on the Rogers case, says Werksmans.
It was important to consider, first, whether there was a “break” in the employee’s employment before it was terminated (many breaks of more than one year) on retirement and in the following four years of employment after his retirement. Second, whether he was entitled to severance pay for that (earlier) period. Both questions had to be answered with reference to the facts of the case.
Section 84(2) obliges an employer to consider “any payment” made to an employee in the previous period of employment with the employer. In other words, just because an employee has been working for a set period does not automatically entitle him or her to one week’s severance for every completed year of service. This is because in certain circumstances it may be necessary to consider a payment received.
The section does not provide any criteria that may be used to determine which payments should or should not be considered when determining the employee’s entitlement to severance pay, says Werksmans.
However, the LAC said, “the fact that an employee was paid a wage or salary by the employer in the course of his employment with the same employer does not disentitle the employee from receiving the statutory severance pay … and the same may be said regarding the payment of other bonuses and allowances”.
In addition, the payment of retirement benefits does not mean an employee is not entitled to severance pay. (In this case, the employee had not claimed retirement benefits, a further distinguishing feature from the Rogers decision.)
The LAC noted that if the employee had previously been retrenched and had been paid severance, this amount should be considered (otherwise there would be a double payment).
The LAC held that the employee continued working “seamlessly” from the date on which he reached retirement age until his retrenchment in 2017. The employee’s employment was therefore uninterrupted.
In addition, he had received no payments that would justify a deduction from the payment of one week for every completed year of service. He was, therefore, entitled to 33 weeks’ severance pay, as the CCMA had held.
I retired at the age of 61 and I worked for a company for 23years am i entitled for servince pay
In terms of the Basic Conditions of Employment Act (BCEA), specifically section 41(1), a retrenched employee is entitled to severance pay equivalent to at least one week’s remuneration for every year of completed service with the employer. Section 41(2) provides for the legal obligation for an employee to pay severance pay. If you have been employed continuously for one year by the same employer and have been dismissed – you are entitled to severance pay. Severance pay is offered to employees who have been dismissed for operational requirements, for example: economic, technological, structural, similar needs of an employer.
Severance pay is also due to those who are let off in terms of section 38 of the Insolvency Act – if the estate of the employer is sequestrated.
There are a few limitations on the right to severance pay, which include:
When there is a break in the employee’s service (more than 12 months), the employee will not be entitled to severance pay for the years exceeding the break in service
If the employee worked on a fixed-term contract for less than two years
An employee will not be entitled to severance pay for the period that he/she worked as an independent contractor for the employer
When an employee reaches the age of retirement, he/she will not be entitled to severance pay if requested to retire at that age.
The employee is not entitled to severance pay should he/she be allowed to work beyond retirement age
If employee offer alternative employment with outside the prevoius emploment is they intilrd for severance payment
I am 57 years old and on May 58 years. Working 7 years after a broken services again for the same company. I had worked for 19.5 years for the company when I had resighn. They employed me again before a year employed me again.
My question is. I consider early pension at 58 years. Am I entitled for a severance package.
In terms of the Basic Conditions of Employment Act (BCEA), specifically section 41(1), a retrenched employee is entitled to severance pay equivalent to at least one week’s remuneration for every year of completed service with the employer. Section 41(2) provides for the legal obligation for an employee to pay severance pay. If you have been employed continuously for one year by the same employer and have been dismissed – you are entitled to severance pay. Severance pay is offered to employees who have been dismissed for operational requirements, for example: economic, technological, structural, similar needs of an employer.
Severance pay is also due to those who are let off in terms of section 38 of the Insolvency Act – if the estate of the employer is sequestrated.
There are a few limitations on the right to severance pay, which include:
When there is a break in the employee’s service (more than 12 months), the employee will not be entitled to severance pay for the years exceeding the break in service
If the employee worked on a fixed-term contract for less than two years
An employee will not be entitled to severance pay for the period that he/she worked as an independent contractor for the employer
When an employee reaches the age of retirement, he/she will not be entitled to severance pay if requested to retire at that age.
The employee is not entitled to severance pay should he/she be allowed to work beyond retirement age
It doesn’t seem fair when you gave your services to the employer and do not get a severance package when you retire but people who don’t fulfill their duties and get let go from employment get their package
If an employer has no policy on retrenchment package, but recent practice when retrenching employees is more favourable that the LRA, could that be used as a baseline to negotiate a retrenchment package?
It could provide a baseline, but the employer could argue that the circumstances were different. I have come across an instance where a group of employees appealed to a previous retrenchment when negotiating with an employer, but it did not succeed.
I started at this company after my 65th birthday a year ago and is currently permanently employed. I have a verbal agreement with my employer to stay on until the age of 70. Now suddenly they want to put me on a year to year contract. I this allowed? (- because after reading this article I think this is just because they don’t want to pay severange package upon voluntary retirement at the age of 70. )
If the company retrech and gave you alternative employment outside the old employer are intiled for severance payment
It depends what you mean by “gave”. Your employer does not have to pay you severance pay if you are offered suitable alternative employment with a new employer as a result of your employer’s efforts. Refer to this article: https://www.moonstone.co.za/severance-pay-isnt-compulsory-if-you-are-retrenched-for-operational-reasons/
From reading the above I doubt I have claim to severance/retirement pay. I have worked for this company for 20 years. i was 52 when I joined with retirement at 65. I stayed on with a year to year contract once reaching 65 until company was sold when I was 72. New company employed me with no retirement date in contract. Now they have given me 2 months retirement notice. I jus want confirmation that I am correct in saying I am not due any extra remuneration despite the long service.
I retired when I reached the age of 63yrs. Three years later I was offered employment with a legal firm. at that point I was 68 yrs of age and now 78 yrs old.
On commencement of employment I was not provided with a contract of employment. I was employed for 10 yrs plus.
Late July 2023 I was told that my employment would terminate on 31 August 2023. It was a fairly casual discussion and the reason for the termination was not specific, neither was I provided with a written notice of my termination.
Am I legally entitled to a severance settlement.
Are you being retrenched for operational reasons?