Retrenchment and Severance Pay

Severance pay is given to an employee where they are “dismissed for reasons based on the employer’s operational requirements,” the amount of which is to be “equal to at least one week’s remuneration for each completed year of continuous service with that employer.” This is per Section 41(2) of the Basic Conditions of Employment Act of 1997 (BCEA). 

However, there are instances where an “operational requirements” retrenchee is not entitled to severance pay. In this regard, Section 41(4) of the BCEA provides that: 

“an employee who unreasonably refuses to accept the employer’s offer of alternative employment with that employer or any other employer, is not entitled to severance pay.” 

In looking at this section, it can be seen that the employee’s conduct is first taken into consideration. They will thus need to engage sufficiently with the employer and adequately motivate any refusal of alternative employment for it to be reasonable. 

Also, the extent to which the current employer’s efforts must go to exonerate them giving a severance package is that: they need to clearly show their instrumental role in the process of securing employment with another employer. 

The Labour Appeal Court (LAC) mentioned in the case of Irvin & Johnson Ltd v Commission for Conciliation, Mediation & Arbitration (CCMA) & Others (2006) that the legal purpose of severance pay is to help support a retrenched employee while looking for a new job. Therefore, an employee cannot expect a severance package if they gained alternative employment through the efforts of their retrenching employer. 

Each case is looked at in the light of its own circumstances, yet the law is quite clear in demarcating the instances where severance pay is required.