Should Section 189 Severance be paid when transferred to another employer?

The purpose of severance pay as a statutory payment for being retrenched ito Section 189 of the Labour Relations Act, is to mitigate the adverse effects of having one’s services terminated, but also to incentivise an employer to find alternatives in lieu of the pending dismissals. However, is it an absolute right that an employee is entitled to severance pay should he or she be dismissed for reasons based on the employer’s operational requirements?

In Vergenoeg vs M Zima & 7 others, the employer Vergoenoeg vir Seniors, a not for gain company in terms of Section 21 of the Company Act, conducts a frail, residential and community care centre in Villeria and Mamelodi for the aged. The employees were employed by the employer as care givers.

Due to challenges with funding and the subsequent financial difficulties experienced by the employer, the employer consulted with the union representing its members ito Section 189 of the LRA. In addition, the employer also negotiated and entered into an outsourcing agreement with Fidelity Supercare Services (Pty) Ltd to have their staff transferred to Fidelity as the new employer. It is of note that this was not a Section 197 Transfer as Going Concern, however staff were given the opportunity to apply for employment at Fidelity after being subjected to an evaluation.

The company gave employees the option, to either be retrenched because of the Section 189 process with severance pay, or alternatively, to accept employment at Fidelity, but forfeiting the entitlement to a severance pay.

Subsequently to the consultations, the employees and the employer entered into an agreement to be transferred and accept employment with Fidelity and having forfeited their severance pay.

Surprisingly, after the completion of the transfer, the employees filed a severance pay dispute at the CCMA against Vergenoeg. They did not challenge the fairness of the Section 189 process, but argued that the employer should have paid severance pay.

The Commissioner found that the agreement entered between the employer and the staff was in breach of Section 41 of the BCEA as severance pay was a basic right to employees if and when being dismissed in context of Section 189 and ruled the employer to pay severance pay within 10 days.

The employer took the arbitration award upon review at the Labour Court, who agreed with the Commissioner, basically for the same reasons, dismissing the application, with cost.

The employer then applied for leave to appeal at the Labour Appeal Court. Snyman obo the employer argued that firstly there was no dismissal so to speak as the employees agreed to terminate their employment with the company and being transferred. They exercised their right to be transferred and in essence separated ways by way of mutual agreement.

In addition, it was argued that the employees were not entitled to severance pay as it was due to the negotiation, facilitation and engagement by Vergenoeg, that the employees found alternative employment with another employer and thus satisfied the requirement of Section 41 of the BCEA.

Section 41 (4) of the Basic Conditions of Employment Act states:

 “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 terms of subsection (2)”

The employees, on the other hand, argued that the employer could not have secured alternative employment with another employer, considering the staff first had to subject themselves to an evaluation. This was an argument rejected by the Labour Appeal Court as the employees lost focus of the fact that they were indeed all employed by Fidelity and the fact that they first had to be subjected to an evaluation, was irrelevant.

The Labour Appeal Court referred to Irvin & Johnson LTD vs CCMA & others (2006-LAC) where judge Zondo JP considered relevant provisions of the Constitution of South Africa, the ILO Convention 158, The Termination of Employment Convention, foreign and local decisions and academic writings on the subject.

The learned judge said in conclusion about the interpretation of Section 41 (4):

“It seems to me that the effect of s 41(4) is that, where the employer has arranged alternative employment for an employee who is facing a (possible) dismissal for operational requirements, either in his employ or in the employ of another employer, three scenarios are possible:

• The one scenario is that the employee unreasonably refuses such alternative employment in which case s 41(4) applies and the employee forfeits the right to severance pay.
• The second scenario is where the employee reasonably refuses such alternative employment in which event, he is entitled to payment of severance pay.
• The third scenario is where the employee accepts the alternative employment in which event, he also forfeits the right to severance pay.”

The judge continued by stating that there is no scenario where an employee gets both the severance pay and the alternative employment, however, that there is a scenario where he gets neither.

“Section 41(4) seems to have a lot more to with giving the employer an incentive to try to get alternative employment for the employee than punishing the employee for unreasonably not taking up a job offer that he should have taken.”

In Casu, the Court found that the Labour Court did not attempt to distinguish its decision from the facts of the case that was under review. It was the employer who negotiated with Fidelity to employ the employees that, because of the employer’s efforts, the individual employees were employed. Further, there is nothing in Section 41 (4) to suggest that the offered employment should be with the same and not any other employer.

The Labour Appeal Court found that the decision reached by the Commissioner was a decision that a reasonable decision maker could not have reached. In addition, the decision by the Labour Court to uphold the decision of the Commissioner was not rational.

The appeal was successful, and the order of the Labour Court was set aside with the application for review having succeeded.

What we learn from this case is that if through the effort of a retrenching employer, employees obtain alternative employment at a different employer, then in terms of Section 41 (4) of the BCEA the employees will not be entitled to severance pay.

It is advisable for employers to seek professional advise. Tobie Nel is the Managing Director for Effectus Harmony (Pty) Ltd and has over 15 years’ experience in Labour Law. You can contact him, by phone: 0824479512, by email: tobie@effectusharmony.co.za

visit: www.effectusharmony.co.za