Misrepresenting reason for dismissal can have dire consequences

Lawyers have drawn attention to a case heard by the Labour Court last year in which the applicant wanted the court to compel his former employer to change the reason his contract was terminated to “retrenchment”. Why? So that he could claim from the Unemployment Insurance Fund and his insurance policy.

Effecting this change would not only have been dishonest, the court found, but the employer would be committing a criminal offence in terms of the Unemployment Insurance Act (UIA).

‘Involuntary resignation’

KPMG gave Andre Swanepoel, a senior employee, the option of resigning or undergoing a disciplinary process, because the company was not satisfied with his performance. Swanepoel did not want to resign, because this would have prevented him from claiming from the UIF and/or his personal insurance.

In November 2017, the parties agreed to terminate their employment relationship. KPMG issued Swanepoel with a certificate of service and the UIF’s UI-19 form and recorded the reason for the termination of employment as “involuntary resignation”.

However, “involuntary resignation” is not one of the grounds for claiming from the UIF, and Swanepoel wanted KPMG to classify his dismissal as a retrenchment and accordingly amend the UI-19 form, his private insurance claim form and service certificate. When KPMG refused, he went to the Labour Court.

KPMG told the court the reason stated in the UI-19 form and service certificate correctly reflected the terms of the settlement agreement. It denied that it retrenched or constructively dismissed the applicant.

However, it was prepared to amend the UI-19 form to reflect that the applicant’s contract of employment terminated on a mutual basis in terms of the settlement agreement.

Wording is clear

The Labour Court said it was clear from the wording of the settlement agreement that the parties had reached a consensus on the applicant’s departure, and Swanepoel had chosen mutual separation instead of facing a disciplinary enquiry.

The court drew attention to sections 64(1) and (2) of the UIA, which make it a criminal offence to:

  • Knowingly make a statement that is materially false and results in the incorrect payment of UIF benefits.
  • Wilfully make a false entry on a contributor’s record card any other book, record or document relating to either a contributor’s employment history or to a contributor’s claim for benefits.

In view of its finding that the contract of employment terminated on a mutual basis, the court said recording “involuntary resignation” on the UI-19 was a false entry in terms of section 64(1)(b) and a criminal offence in terms of section 64(2).

However, the Labour Court does not have jurisdiction to deal with criminal offences in terms of the UIA.

Furthermore, the court pointed out that Swanepoel was essentially seeking an order directing KPMG to lie about the reason for the termination of his contract of employment so that he could claim UIF benefits and, in turn, commit an offence in terms of section 64(1)(a) of the UIA.

Caution to employees and employers

It seems there is trend of employment relationships being terminated via a mutual separation agreement. When this occurs, employees may ask that their termination is characterised as a retrenchment so that they may enjoy the tax relief applicable to severance packages and claim unemployment insurance benefits.

The Labour Court’s decision serves as a warning to employees and employers that misrepresenting the reason for termination on the UI-19 form is a criminal offence.

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