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Unfair Retrenchment Practice: Severance Pay

DismissalSomeone asked a question on a LinkedIn forum recently.

Her organisation was ‘downsizing’ and about 20 employees were being retrenched. Some of those being retrenched were offered contracts of service as independent contractors. They specifically asked the employer whether they would remain on the payroll. They were told that they would not as they would be independent contractors.

The employees were given time to think about it, but they were told that if they turned down the offer, they would not receive any severance pay. This in accordance with section 41(4) of the Basic Conditions of Employment Act (BCEA), which states that no severance pay is due to an employee who ‘unreasonably refuses to accept the employer’s offer of alternative employment’. According to the BCEA, severance pay is one week’s pay for every year of service.

Alternative employment
But the employer, by her own admission, was not offering alternative employment. She explicitly clarified that their status would be independent contractor and they would not be employees. Section 41(4) only applies if the employer is offering some security to the employee. In other words, if the employees were later retrenched from their new position, they would receive severance pay for their full period of employment. The new position, in other words, should not leave them worse off than before.

This employer is trying to avoid severance pay without securing the employees’ future. The employer could simply cancel the independent-contractor contracts in a couple of months, and these employees would be left high and dry.

Severance pay
Employers cannot have their cake and eat it. It’s one or the other. Either you are retrenching staff and taking them off your payroll (in which case they are entitled to severance pay) or you are keeping them on the payroll and no severance pay is due at this time.

Alternative employment acceptable to section 41(4) may include transfer to another employer. But such a transfer comes with the same or similar terms and conditions of service and, important in this case, a transfer of the employee’s years of service. Thus, if the new employer were to close down or retrench staff the transferred staff would not lose out on their full retrenchment pay. Either the current employer pays them out or the new employer carries the years of service and the risk as part of the deal.

Whatever we do, we cannot contract ourselves out of labour legislation. The more we try, the more the unions will succeed in persuading government to tighten up rather than relax the laws. Trying to find loopholes in labour legislation will always end in tears.

What labour-legislation woes have you experienced? Tell us your story below.

Ian Webster

From Methodist minister to Customer Relations manager in a computer bureau to HR Manager in a newspaper printing and publishing company. Now focussing on training and developing people, people-management consulting and writing and editing.

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