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Severance pay: the ‘reasonable’ alternative

Peter McDermott

If you dismiss one of your employees because of operational reasons, you must pay him or her severance pay. You must pay them one week's remuneration for every continuous year that they've spent at your company. However, if you offer this employee alternative employment – and that employee unreasonably refuses – you aren't legally obligated to give severance pay.

This is according to section 41 of the Basic Conditions of Employment Act (Act No. 75 of 1997 as amended) (BCEA).

The BCEA seems to suggest that if an employer offers the affected employee alternative employment - and the employee unreasonably refuses to take the employer up on that offer - the employee will forfeit the right to receive any severance pay. However, this wasn't the case when the court presided over Astrapak Manufacturing Holdings (Pty) Ltd t/a East Rand Plastics v Chemical Energy, Paper, Printing, and Allied Workers Union 2014 35 ILJ 140 LAC. In this case:

  • The company was restructuring and offered the employees alternative employment within the company. However, this employment was under different conditions, which would mainly include:
    - Some of the employees not having to work overtime and therefore not receiving overtime pay as before.
  • Other employees were offered employment with the company under similar or more favourable conditions.
  • A portion of the affected employees refused the employer's alternative employment, which included employees who were offered less favourable conditions, similar conditions and more favourable conditions.
  • All of the employees who refused the employer's alternative employment offer forfeited their severance pay.
  • The employer argued that overtime is not a right and forfeiting overtime doesn't constitute less favourable employment conditions.
  • The Labour Appeal Court did confirm that those employees who were offered the same, or slightly higher, salaries (and on conditions that weren't more onerous than before) would be unreasonable in refusing such alternative employment. This means that they would legitimately forfeit their right to severance pay.
  • However, the judge considered that the employees had "planned and budgeted their lives on the money received for overtime" even though - strictly speaking – no one is entitled to work overtime.
  • This led to the finding that "as [the employees] would have been significantly impoverished had they accepted [the] alternative employment offered [they] had not acted unreasonably by not accepting alternative employment offers."
  • The court further found that where employees were offered alternatives with reduced remuneration on the whole, refusal wouldn't necessarily be unreasonable. In this case, employees would be entitled to severance pay.

Peter Mcdermott

Peter did a Bachelor of Technology (B.Tech), Human Resources Management and Services at Technikon Witwatersrand (1994-1998) and an Advanced Diploma – Labour Law, Law at University of Johannesburg (2001-2002).

He joined Labour Net in 1997 and was a consultant there until 2000, and has been a director and shareholder in Invictus Outsourcing Solutions since November 2001.

Peter has gained extensive knowledge and experience over the past 17 years in dealing with various Human Resources (HR) and Industrial Relations (IR) matters, including but not limited to :

  • Bargaining Council
  • Black Economic Empowerment (BEE)
  • CCMA
  • Contracts of Employment
  • Corporate Law
  • Disciplinary Procedures
  • Dismissals
  • Dispute Resolutions
  • Employment Equity (EE)
  • HR Policies and Procedures
  • Labour Court
  • Labour Relations
  • Negotiations
  • Performance Management
  • Personnel Management
  • Policies and Procedures
  • Retrenchments
  • Skills Development (SD)
  • Strikes
  • Talent Management
  • Trade Unions