The economic climate in which many South African firms operate has meant that dismissals for operational requirements have become an inescapable concern. However are employees always entitled to severance pay?
Section 41(1) of the Basic Conditions of Employment Act, 1997 provides that a retrenched employee is entitled to severance pay at least equal to one week’s remuneration for every year of completed service with the employer. This obligation to pay severance pay is tempered by the provisions of section 41(4). A retrenched employee is not entitled to severance pay if that employee unreasonably refuses an offer of alternative employment.
An example of how these provisions have been applied can be found in the recent decision of the Labour Appeal Court (“LAC”) in Lemley v T-SYSTEMS (Pty) Ltd. The employee in this matter was retrenched from his post in Port Elizabeth. During the retrenchment consultation process, the employer offered him alternative employment at the same level in East London. The employee rejected this offer without giving reasons for this refusal. A revised offer was then tendered by the employer; a rental subsidy that the employee would have been paid was increased. This offer was also rejected by the employee without him providing any reason for the rejection. In light of the fact that the employee was approaching retirement, the employer then proposed that the employee retire. The employer was prepared to pay the employee an amount of ZAR314 000, which represented the amount of the combined payments that the employer and employee would have paid to the employee’s provident fund until the date of his retirement. This was also rejected by the employee. He was then retrenched. The employer refused to pay the employee his severance pay on the basis that he had unreasonably refused the employer’s offer of alternative employment.
The employee referred a dispute about the employer’s refusal to pay a severance package to the Commission for Conciliation, Mediation and Arbitration. His application was dismissed on the ground that he had unreasonably refused the alternative offer of employment by the employer. The employee applied to the Labour Court to have the award reviewed and set aside. This application was dismissed by the Labour Court but the employee was granted leave to appeal to the LAC.
In the LAC, the employee argued that his refusal of the alternative employment offered to him was reasonable because his personal circumstances, which included his age, rendered it impossible for him to accept the position. The employer argued that the commissioner’s award was reasonable because an offer of alternative employment was made, especially in the light of the fact that the employee had not, in refusing the offers, communicated to the employer the reasons why he did not accept them.
The LAC agreed with the employer’s arguments and dismissed the appeal. After referring to the provisions of section 41, it pointed out that there were “compelling reasons” why the legislature saw fit to limit the payment of severance pay. It incentivises an employer to provide alternative employment, and seeks to limit job losses on retrenchment. Interestingly, in finding that the refusal of the offer of alternative employment was unreasonable, the LAC took into account the employee’s failure to motivate his refusal. It expressed its views as follows:
“ The finding of the commissioner that there were no sound reasons for the appellant’s refusal to accept the alternative employment offered was not one that a reasonable decision-maker could not reach. The appellant took no steps to engage with the third respondent in any meaningful way regarding the difficulties he may have faced in accepting the alternative position offered. Instead, he elected to refuse the offer without advancing reasons and took no steps to discuss or engage on the matter with the third respondent. The revision to the offer made was simply rejected and the offer of a pension fund payment to allow for early retirement was equally not accepted, in circumstances in which the third respondent had taken steps to resolve the issue in a constructive manner. When the issue of his family circumstances was raised … no further steps were taken to detail these circumstances or discuss the matter further with the third respondent. The appellant’s approach to the offer made was obtuse and unreasonable in the circumstances. His age and years of service do not alter the fact that he unreasonably refused the offer of alternative employment made to him. It follows that the Labour Court correctly dismissed the review application.”
The LAC confirms the principle that the question whether an employee is entitled to a severance package is not determined by considering the reasonableness of the employer’s offer alone; the reasons why the employee refused the alternative employment are also of importance. However, what is of interest is that the LAC took into account the conduct of the employee when refusing the offer of alternative employment. An important, if not the primary reason for the LAC’s finding, was the fact that the employee did not engage sufficiently with the employer on the issue and failed to motivate this refusal during the consultation process. In addition, it seems that the LAC was also influenced by the fact that the employee was offered the option of taking early retirement in circumstances where the employer sought to mitigate the effects of early retirement on the lesser benefit that would be paid out. While this consideration clearly impacts on the fairness of the employer’s conduct, it can be argued that this was not an offer of alternative employment and therefore should not have been taken into account.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.