The Labour Appeal Court (LAC) has ruled that an employee who worked for four years after he reached retirement age was entitled to severance pay based on his entire period of employment, not only the four years after he retired.
Werksmans Attorneys says the case is important because the court found that a break in employment of less than a year does not affect the calculation of an employee’s length of service, regardless of the reason for the break.
The employee worked for Paramount Advanced Technologies for 28 years, reached the retirement age of 65 but continued to work, uninterruptedly, for a further four years.
He was voluntarily retrenched in 2017. The severance package offered one week’s remuneration for every completed year of service and one week’s salary for incomplete years of service.
The employee’s severance pay was based on his employment for the years of completed service after the date of his retirement. Paramount said he had officially retired in 2013 and therefore his years of service before that were not considered.
The employee accepted the severance package subject to the reservation that the calculation of the severance pay was incorrect.
The CCMA held there had been no break in the employee’s employment when he continued his employment after he reached retirement age, and so he was entitled to 33 weeks’ severance pay.
But the Labour Court overturned the arbitrator’s decision on review.
‘Reason for break in service not relevant’
The LAC noted that section 41(2) of the Basic Conditions of Employment Act (BCEA) is unambiguous and provides that if employees are dismissed for operational reasons, they are entitled to severance pay equal to one week’s remuneration for each completed year of service with the same employer, says Werksmans.
Although the BCEA does not define “continuous service”, section 84(1) provides that an employee’s service with the employer is considered to be “continuous” if there was a break in service of less than one year. Therefore, section 84(1) effectively provides that even if there is interruption in the course of the employment, for the purposes of determining the length of service, the break or interruption is inconsequential if it is less than one year.
“What is important to note is that the reason for any break in service is not relevant,” says Werksmans.
The LAC found that the entitlement of an employee who has had more than one period of employment with an employer to severance pay requires the application of sections 84(1) and 84(2).
- Section 84(1): “For the purposes of determining the length of an employee’s employment with an employer for any provision of this Act, previous employment with the same employer must be taken into account if the break between the periods of employment is less than one year.”
- Section 84(2): “Any payment made or any leave granted in terms of this Act to an employee contemplated by sub-section (1) during a previous period of employment must be taken into account in determining the employee’s entitlement to leave or to a payment in terms of this Act.”
Retirement benefits and severance pay
The Labour Court relied on its decision in the 2014 Rogers v Exactocraft (Pty) Ltd case when calculating the severance payment, according to Werksmans. The court held that the period before retirement should not be taken into account when calculating severance pay. An employee who received (or was entitled to receive) retirement benefits could not also obtain severance pay.
But the LAC did not agree with the Labour Court’s reliance on the Rogers case, says Werksmans.
It was important to consider, first, whether there was a “break” in the employee’s employment before it was terminated (many breaks of more than one year) on retirement and in the following four years of employment after his retirement. Second, whether he was entitled to severance pay for that (earlier) period. Both questions had to be answered with reference to the facts of the case.
Section 84(2) obliges an employer to consider “any payment” made to an employee in the previous period of employment with the employer. In other words, just because an employee has been working for a set period does not automatically entitle him or her to one week’s severance for every completed year of service. This is because in certain circumstances it may be necessary to consider a payment received.
The section does not provide any criteria that may be used to determine which payments should or should not be considered when determining the employee’s entitlement to severance pay, says Werksmans.
However, the LAC said, “the fact that an employee was paid a wage or salary by the employer in the course of his employment with the same employer does not disentitle the employee from receiving the statutory severance pay … and the same may be said regarding the payment of other bonuses and allowances”.
In addition, the payment of retirement benefits does not mean an employee is not entitled to severance pay. (In this case, the employee had not claimed retirement benefits, a further distinguishing feature from the Rogers decision.)
The LAC noted that if the employee had previously been retrenched and had been paid severance, this amount should be considered (otherwise there would be a double payment).
The LAC held that the employee continued working “seamlessly” from the date on which he reached retirement age until his retrenchment in 2017. The employee’s employment was therefore uninterrupted.
In addition, he had received no payments that would justify a deduction from the payment of one week for every completed year of service. He was, therefore, entitled to 33 weeks’ severance pay, as the CCMA had held.