Forfeiture of severance pay – “you snooze you lose”

The Labour Relations Act 66 of 1995, as amended (“the LRA”) envisages a meaningful, joint consensus-seeking process whenever an employer considers dismissals based on operational requirements. One of the issues that the parties must attempt to reach consensus on is the possibility of alternatives to retrenchment.

In Lemley v Commission for Conciliation, Mediation and Arbitration and Others (2020) 41 ILJ 1339 (LAC) the Labour Appeal Court was faced with a situation concerning the refusal of T-Systems SA (Pty) Ltd (“the Employer”) to pay its former employee (“the Employee”) a severance package after he was retrenched on 25 September 2009.

To provide context, the Employer had initiated a section 189 process read with section 189A of the LRA. In accordance with the provisions of the LRA, the Employer presented to the Employee an offer of alternative employment in East London on 13 May 2009. This offer was rejected by the Employee, without giving any reasons for doing so. On 29 May 2009, the Employer tendered to the Employee a revised offer in terms of which the Employer would increase the rental subsidy offered to him in East London. This offer was once again rejected by the Employee.

It is important to note that at the commencement of the retrenchment process the applicant was living in Port Elizabeth, which is some 284 km’s away from the alternative employment offered in East London. Furthermore, the applicant had completed some 38 years of service with the Employer and was 57 years old.

During a consultation meeting held on 11 June 2009, the Employee indicated that the offers tendered by the Employer were not viable for him due to his age and family circumstances.

In light of the Employee’s rejection of the aforementioned offers, the Employer offered the Employee the opportunity to take early retirement and further offered to subsidize the shortfall in his pension fund in the amount of R314 000.00, to allow him to take early retirement. This was calculated as the amount that the Employee and the Employer would have contributed towards his pension fund until his natural date of retirement. This offer was once again rejected by the Employee with little reason advanced for the rejection.

Given the Employee’s refusals of the alternatives proposed by the Employer, the Employee was retrenched without payment of a severance package.

Aggrieved by the outcome, the Employee referred a dispute to the Commission for Conciliation, Mediation and Arbitration (“the CCMA”). The CCMA found that the Employee had unreasonably refused the offer of an alternative position in East London and as result dismissed the referral.

Further aggrieved by the outcome of the CCMA, the Employee reviewed the award in the Labour Court. The Labour Court found that the decision reached by the Commissioner, namely that the Employee was not entitled to any severance pay, was a reasonable decision based on the evidence tendered and could not be faulted.

In the Labour Appeal Court (“LAC”), the Employee submitted that the Commissioner erred in not finding that he reasonably refused the alternatives offered to him due to his personal circumstances and in so doing reached a decision that no reasonable Commissioner could reach on the facts of the case.

In the LAC’s evaluation of the relevant authority, it considered section 41(2) of the Basic Conditions of Employment Act 75 of 1997, as amended (“the BCEA”) which requires, inter alia, an employer to pay at least one week’s remuneration for each completed year of continuous service to an employee who is dismissed for reasons based on operational requirements. The Court further considered section 41(4) of the BCEA which provides, inter alia, that an employee who unreasonably refuses to accept the employer’s offer of alternative employment is not entitled to severance pay in terms of subsection (2).

The Court then evaluated the facts of the case, and particularly the Employee’s refusal of the offers made to him and his failure to provide any reasonable explanations for doing so. In addition, the LAC considered the fact that the Employee rejected a further offer to subsidize the shortfall in his pension fund to allow him to take early retirement, seeking instead that his full severance benefit be paid to him.

In the circumstances, the LAC viewed the Employee’s refusals as unreasonable and lacking any coherent explanation. The Court thus concluded that the Commissioner’s finding that there were no sound reasons for the Employee’s refusal to accept the alternative employment was one which a reasonable decision-maker could arrive at and that it fell within a band of reasonable decisions.

To substantiate its views, the LAC noted that the Employee had taken no steps to engage the Employer regarding the alternatives to dismissal and that the offers tendered by the Employer were reasonable and fair given the circumstances. The LAC further noted that the Employee’s age and years of service did not alter the fact that he had unreasonably refused the offer of alternative employment. To that end, the LAC concluded that the Labour Court had correctly dismissed the review application and thus proceeded to dismiss the appeal application.

It is evident from this case that once an employer has offered reasonable alternatives, an employee must be very careful when deciding to reject those offers as this could lead to a forfeiture of the right to severance pay in accordance with section 41(4) of the BCEA. An employee who refuses a reasonable offer of alternative employment should provide sufficient reasons for their rejection of the offer and must attempt to engage with the employer to canvass further alternatives that may be present. Failing to do so may result in retrenchment without a severance package.

Written by Gael Barrable and Mzamo Danana
of Cowan-Harper-Madikizela Attorneys

MZAMO_DANANA CHM Legal Attorneys