A recent Labour Court case found that some employers could be exempt from paying severance to retrenched employees if they can demonstrate that they helped secure alternative employment with a new employer.
However, this is only under very specific circumstances—specifically, where the employer swiftly takes action and actively secures the new job.
Legal experts at Cliffe Dekker Hofmeyr, Jean Ewang and Thobeka Kalipa, followed the recent Labour Court case of Khanya Cleaning Group (Pty) Ltd v South African Transport & Allied Workers Union and Others, which they said saw important clarifications arise.
In accordance with the Basic Conditions of Employment Act (BCEA), an employee who is retrenched is entitled to receive severance pay unless they have unreasonably refused an offer of alternative employment.
The court, in discussing the purpose for which severance pay was established by the provisions of section 41 of the BCEA, confirmed that the purpose is to compensate employees for the loss of employment through no fault of their own and to act as a cushion from the loss of employment.
Ewang and Kalipa said that the exception in section 41(4), which provides that no severance pay becomes payable where an alternative offer of employment is unreasonably refused, is intended to incentivize employers to ensure that the employees obtain alternative employment.
“The court… confirmed that the legislature did not intend, in its enactment of section 41(4), that a retrenched employee would be able to secure severance pay and a salary for the alternative employment,” said the CDH experts.
In determining whether the former employees were entitled to severance pay, the court found that the employer was not a passive actor in its former employees securing new employment.
It assisted the new employer in offering alternative employment to its retrenched employees.
“The judgment confirmed that in circumstances where an employer played a part in securing alternative employment for retrenched employees with a new employer and sought to be exempt from paying severance pay on this basis,” said Ewang and Kalipa.
“It was not a requirement for it to have negotiated a special term with another employer to offer alternative employment to its retrenched employees,” they added.
The key considerations for this are twofold.
First, there should be clear collaboration between the former employer and the new employer. Second, the former employer must have acted quickly and provided the necessary information to facilitate job offers for the retrenched employees.
The decision will vary based on the specific details of each case, and courts will evaluate the facts to see if the former employer genuinely contributed to the employees securing new positions.
“Accordingly, employers that seek to be exempt from the statutory obligation to pay severance pay on the basis that they have secured alternative employment for retrenched employees must be able to demonstrate, on the facts, that they acted swiftly and took an active role in efforts to ensure that their retrenched employees secured alternative employment,” said the CDH experts.
