Severance pay isn’t compulsory if you are retrenched for operational reasons

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.

In terms of section 41(4) of the Basic Conditions of Employment Act (BCEA), an employee who is dismissed for operational requirements is not entitled to severance pay if the employee “unreasonably refuses to accept the employer’s offer of alternative employment with that employer or any other employer”.

Jacques van Wyk, a director of Werksmans Attorneys, and Michiel Heyns, a senior associate, and Danelle Plaatjies, a candidate attorney at the law firm, discussed the application of section 41(4) in a case that recently came before the Labour Court: Servest Landscaping Turf Maintenance (Pty) Ltd v Saccawu obo Thisani & Others (2022).

They said the legal principles governing severance pay were set out by the Labour Appeal Court (LAC) in the 2006 case of Irvin & Johnson Ltd v Commission for Conciliation, Mediation & Arbitration & others.

The LAC held that “the purpose of severance pay in our law is not necessarily to tide the employee over while he is looking for another job. If that were the purpose, an employee who immediately walks into another and sometimes even better paying job after his dismissal would not be entitled to severance pay because he would have no need for it.”

The LAC held that section 41(4) of the BCEA ultimately rewards an employer for offering or securing alternative employment for an employee.

LAC set out four instances when severance pay is and is not payable in terms of section 41:

• If the employee unreasonably refuses an offer of alternative employment, no severance pay is payable.
• If the employee reasonably refuses such alternative employment, he or she is entitled to severance pay.
• If the employee accepts the alternative employment, he or she also forfeits the right to severance pay.
• If an offer of alternative employment is made to the employee, but the offer is not made by his or her employer or through the efforts of his or her employer, he or she is entitled to severance pay, even if the employee turns it down.

CCMA award

Werksmans said that in the Servest case, the Commission for Conciliation Mediation and Arbitration (CCMA) found that Servest had failed to prove that the individual employees had obtained alternative employment with Bidvest through Servest’s efforts. Instead, the CCMA found that, at best, Servest played a part in facilitating the employment of the 22 employees with Bidvest but did not secure such employment for the employees.

The CCMA concluded it was not at the instance of Servest that the retrenched employees found alternative employment with Bidvest.

‘Error in law’

Servest referred the award for review to the Labour Court, which found that the arbitrator had made an error of law which led her to “disregard or minimise the significance of material evidence”, Werksmans said.

“The evidence presented, which had been left uncontested, indicated that the relevant branch manager of Servest initiated meetings with Bidvest, that Servest kept a ‘close eye’ on Bidvest’s recruitment of its staff, and made its own premises, facilities and resources available to ensure that no one would be left unemployed or lose a day’s work.

“The Labour Court found that the CCMA had made an error of law in finding that anything less than a binding undertaking obtained by Servest from Bidvest was sufficient to show that Servest secured alternative employment for the 22 employees,” the law firm said.

The court set aside the finding of the CCMA with a finding that all the employees who were employed by Bidvest through Servest’s efforts were not entitled to severance pay, because section 41(4) of the BCEA applied.

Key takeaways

An employee will not be entitled to severance pay if the employee is employed by another employer and the retrenching employer can demonstrate that it secured the alternative employment through its efforts, Werksmans said.

At a minimum, a retrenching employer must be able to demonstrate that it played an instrumental role in securing alternative employment for an employee with another employer if it seeks to rely on section 41(4) of the BCEA.

Disclaimer: The information in this article does not constitute legal advice.