Forfeiting severance pay: Reasonable alternative job offer

Note: Footnotes omitted and emphasis added

Introduction

[1] This appeal raises the question whether in our law an employer is liable to pay severance pay to employees facing an imminent dismissal for operational requirements, who accepts his offer of alternative employment with another employer. In stating this question, I have deliberately referred to a dismissal even though in this case there is a dispute about whether what occurred constituted a dismissal or whether it was simply a termination of the contracts of employment by agreement between the appellant, as the employer, and the employees concerned. My reason for stating the question thus will be apparent later in this judgment.

[2] This question arises within the context of an appeal from a decision of the Labour Court which, in an application for the review and setting aside of an arbitration award, answered this question in the affirmative. The Labour Court refused to interfere with the arbitration award and dismissed the review application. With the leave of that court, the appellant now appeals to this Court against the judgment and order of the Labour Court (per Waglay J). The appeal is unopposed. Before I deal with the appeal, it is necessary to set out the facts of this matter.

The relevant facts

[3] The appellant is a company engaged in the fishing industry. It has a plant in Woodstock, Cape Town, where the fourth to the thirty-first respondents (“the individual respondents”) were employed. The individual respondents are members of the third respondent which is a registered trade union (“the union”). The second respondent is a commissioner of the first respondent, the Commission for Conciliation, Mediation and Arbitration (“the CCMA”). The second respondent will be referred to in this judgment simply as “the commissioner”.

[4] The appellant provides a canteen for its workers at the Woodstock factory. Prior to 1998 the canteen was managed and operated by the appellant. For this purpose the appellant used its employees. The individual respondents were all based at the canteen. During 1998 the appellant decided to have the canteen run and managed by a third party. To this end it solicited bids from interested parties. The interested parties were required, as a condition, to take over the whole canteen staff and continue to employ them.

Eventually the appellant concluded an agreement with Kagiso Khulani Supervision Food Services (Pty) Ltd (“KKS”) in terms of which the latter agreed to take over the operation of the canteen with the appellant’s existing canteen workforce at the rates of payment which then applied to them. The duration of the contract between KKS and the appellant was a period of 12 months with an option to renew it.

[5] In the meantime the appellant held consultations with the individual respondents’ representatives regarding the termination of their employment and its intention to secure alternative employment for them with KKS at similar rates of pay. By the time that the appellant had discussions with the individual respondents about alternative employment with KKS, it had already concluded an agreement with KKS. The individual respondents were given time to consider the alternative offer of employment. At that stage the appellant’s manager at the canteen left its employ. The appellant also entered into an agreement with KKS in terms of which an employee of KKS was appointed to manage the canteen. Having considered the offer of alternative employment, the individual respondents informed the appellant that they accepted the offer.

[6] The individual respondents’ contracts of employment were terminated at the end of August 1998. There is a dispute between the parties about whether such termination constituted a dismissal of the individual respondents by the appellant as contemplated in the definition of the word “dismissal” in section 186 of the Labour Relations Act 66 of 1995 (“the Act”) or whether it was a termination of the contracts of employment by agreement between all parties concerned. The individual respondents subsequently signed contracts of employment with KKS. On the termination of the individual respondents’ contracts of employment with the appellant, the latter paid them certain benefits including a pro rata bonus, accumulated leave pay and provident fund benefits. The appellant did not pay them severance pay.

[7] The contracts of employment concluded between KKS and the individual respondents came into effect on 1 October 1998. The new contracts were similar to the agreements that existed between the appellant and the individual respondents save for the facts that KKS did not recognise their past service with the appellant and had a probationary clause. With regard to the probationary clause the evidence given by one of the appellant’s witnesses in the arbitration was to the effect that the provision for the probationary period was later cancelled. The individual respondents’ service periods ranged between six and 26 years.

[8] After the termination of the individual respondents’ contracts of employment, the individual respondents demanded that the appellant pay them severance pay. The appellant refused to do so. A dispute arose about whether the appellant was obliged to pay severance pay to the individual respondents.

The arbitration

[9] The dispute was referred to arbitration after an unsuccessful conciliation. The commissioner was assigned to arbitrate the dispute under the auspices of the CCMA. The arbitration commenced before the commissioner on 3 May 2001. The appellant contended, among other things, that the individual respondents were not entitled to severance pay because they had not been dismissed but that their employment was terminated by mutual agreement. The appellant argued further that, even if the individual respondents had been dismissed, they had forfeited their right to severance pay, since they had accepted the appellant’s offer of alternative employment with KKS.

[10] The union argued that the termination of the individual respondents’ contracts of employment constituted a dismissal. The union further argued that it was unreasonable and unfair for the appellant to refuse to pay severance pay to the individual respondents on the ground that they had accepted its offer of alternative employment with KKS because the alternative employment offered to them was not reasonable. It contended that, if KKS were to retrench any of the employees, their past service with the appellant would not be taken into account in calculating their severance pay in terms of section 41 of the Basic Conditions of Employment Act 75 of 1997 (“BCEA”). The union also contended that, since the individual respondents were dismissed for operational requirements, they were entitled to severance pay in terms of section 41 of the BCEA.

[11] Having evaluated the evidence led and considered section 41 of the BCEA, the commissioner came to the conclusion that the individual respondents were entitled to severance pay.

In her award the commissioner reasoned as follows:

“I do not accept that what occurred was a ‘consensual transfer’. The company had clearly decided to outsource the canteen and the employees’ job with the company was going to be terminated. That was a fait accompli. The fact that the company secured offers of alternative employment for the employees does not change that fact. The alternative was not to their current jobs, it was an alternative to being unemployed . . .

In circumstances, I find that the employees were dismissed for operational requirements as contemplated by section 41 of the BCEA. On the strict wording of the BCEA, severance pay must be paid, unless the employees fall into section 42(4) [sic]. That is not the case here, as the employees accepted the offer of alternative employment. Section 42(4) contemplates an employee who unreasonably refuses to accept the employer’s offer of alternative employment.

Section 42 of the BCEA does not expressly state that an employee who accepts an employer’s offer of alternative employment is not entitled to severance pay . . .
To my mind, for the purposes of interpreting section 42(4), it must be contemplated that where an employee accepts a reasonable offer of alternative employment with that employer or another employer the right to severance pay is forfeited. I do not believe that section 42 of the BCEA implies that if the employee accepts an offer of employment which is not a reasonable alternative, that he or she forfeits his or her claim to severance pay” (emphasis added).

The commissioner erroneously referred to section 42(4) when she meant to refer to section 41(4).

The commissioner issued an award in favour of the individual respondents and ordered the appellant to pay them severance pay.

The review

[12] The appellant was aggrieved by the commissioner’s award. It accordingly brought a review application in the Labour Court to have the award reviewed and set aside. The matter came before Waglay J in the Labour Court. Before the Labour Court, the appellant contended that the finding that the individual respondents had been dismissed was not supported by evidence.

It argued that the evidence clearly established that the appellant and the individual respondents had agreed to the termination of the individual respondents’ contracts of employment so that they could take up new employment with KKS. The appellant argued that the finding that there was a dismissal was irrational, unjustifiable and constituted a gross irregularity.

[13] The appellant also attacked the commissioner’s finding that the alternative employment was not reasonable on the basis that it lacked a proper factual basis. It contended that the commissioner’s conclusion that the individual respondents’ acceptance of the appellants offer of alternative employment with KKS did not result in the forfeiture of their right to severance pay was a fundamental and gross error of law. The appellant argued that it was irrational to hold that an employee who accepted the employer’s offer of alternative employment was entitled to severance pay as he still had a job and was not unemployed.

[14] Waglay J was not persuaded by these arguments. He found that the appellant had omitted to indicate to the individual respondents that it had decided to outsource its canteen operations and that KKS would not recognise their service period with the appellant.

Waglay J held that, as a result of this omission, there was no basis for interfering with the finding by the commissioner to the effect that the individual respondents were dismissed.

[15] On the question whether, by accepting the appellant’s offer of alternative employment with KKS which had been found by the commissioner to be unreasonable, the individual respondents forfeited severance pay, the Labour Court concluded that the commissioner’s award was justifiable in terms of the reasons given for it. The Labour Court held that the acceptance of an unreasonable offer of employment did not lead to an employee forfeiting his right to severance pay.

The appeal

[16] On appeal before us counsel for the appellant pursued the same arguments that had been advanced before the Labour Court. In the view I take of the matter I am prepared to assume, without deciding, in favour of the union and the individual respondents that the individual respondents were dismissed from the appellant’s employment.

It follows from this that, within the context of this case, if the individual respondents were dismissed by the appellant, such dismissal was based on the appellant’s operational requirements.

[17] Counsel for the appellant contended that, even if it were accepted that the individual respondents had been dismissed, they were still not entitled to payment of severance pay.

He submitted that accepting the appellant’s offer of alternative employment with KKS, the individual respondents forfeited their right to severance pay.

In this regard he submitted that the reasonableness or otherwise of the offer of the alternative employment was irrelevant to the question whether they were entitled to severance pay.

Counsel for the appellant submitted that, if an employee accepted his employer’s offer of alternative employment with such employer or another employer, he forfeited the right to severance pay because its purpose was to tide the employee over while he was looking for another job. The submission was that, if an employee accepted alternative employment arranged by the employer, he continued to be employed and the employer did not need to tide him over.

He submitted also that as a matter of policy such a proposition made sense because it would encourage employers to do more to secure alternative employment for their employees facing a dismissal for operational requirements because they would know that they would not have to pay severance pay whereas, if the position was different they would be discouraged from seeking alternative employment for their employees.

[18] The question whether or not the individual respondents were entitled to severance pay depends on the correct construction of the relevant provisions of the BCEA. Section 41 of the BCEA governs entitlement to severance pay. The relevant provisions of section 41 of the BCEA read thus:

“41. Severance pay–
(1) For the purposes of this section, operational requirements means requirements based on the economic, technological, structural or similar needs of an employer.
(2) An employer must pay an employee who is dismissed for reasons based on the employer’s operational requirements or whose contract of employment terminates or is terminated in terms of section 38 of the Insolvency Act, 1936 (Act 24 of 1936) severance pay equal to at least one week’s remuneration for each completed year of continuous service with that employer, calculated in accordance with section 35.
(3) . . .
(4) 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).”

[19] In interpreting these provisions it will have to be borne in mind that the BCEA is part of legislation that seeks to give effect to the constitutional right to fair labour practices entrenched in our Bill of Rights (section 23). It is also necessary to have regard to foreign law, international instruments and foreign case law in order to see how severance pay is dealt with, what its purpose is taken to be and when liability for it arises for an employer.

Section 23(1) of the Constitution provides that “(e)veryone has the right to fair labour practices”. Section 2 of the BCEA provides that the purpose of that Act is to advance economic development and social justice by fulfilling its primary objects. Its primary objects are set out as being:

“(a) to give effect to and regulate the right to fair labour practices conferred by section 23(1) of the Constitution–
(i) by establishing and enforcing basic conditions of employment; and
(ii) by regulating the variation of basic conditions of employment;
(b) to give effect to obligations incurred by the Republic as a member state of the International Labour Organisation.”

[20] Section 39 of the Constitution of the Republic of South Africa 108 of 1996 (“the Constitution”) deals with the interpretation of the Bill of Rights and any legislation. It reads:

“39 Interpretation of Bill of Rights
(1) When interpreting the Bill of Rights, a court, tribunal or forum–
(a) must promote the values that underlie an open and democratic society based on human dignity, equality and freedom;
(b) must consider international law; and
(c) may consider foreign law.
(2) When interpreting any legislation, and when developing the common law or customary law, every court, tribunal or forum must promote the spirit, purport and objects of the Bill of Rights.
(3) The Bill of Rights does not deny the existence of any other rights or freedoms that are recognised or conferred by common law, customary law or legislation, to the extent that they are consistent with the Bill.”

[21] The ILO Convention 158, the Termination of Employment Convention, deals with severance pay in article 12. Article 12 reads thus in so far as it is relevant for present purposes:

“1. A worker whose employment has been terminated shall be entitled, in accordance with national law and practice, to:
(a) a severance allowance or other separation benefits, the amount of which shall be based inter alia on length of service and the level of wages, and be paid directly by the employer or by a fund constituted by employer’s contribution;
(b) benefits from unemployment insurance or assistance or other forms of social security such as old age or invalidity benefits, under the normal conditions to which such benefits are subject; or
(c) a combination of such allowance and benefits.”

[22] What is important in article 12(1) of the Convention is that a worker’s entitlement to severance pay is said to be “in accordance with national law and practice”.

This seems to suggest that it contemplates that national legislation and practice may provide for situations where an employee would not be entitled to payment of severance pay.

Indeed, article 18(1) of the Termination of Employment Recommendation, 1982 makes similar provisions as those of the Convention.

[23] A reference to foreign case law may be appropriate. In this regard it is to be noted that in Brassey v Lloyd – that is the English case from which Lord Denning’s statements referred to above were taken – Lord Denning dealt with the Redundancy Payments Act of 1965 of the United Kingdom.

It would appear from Lord Denning’s speech that section 1 of that Act provided that an employee was entitled to redundancy pay if he was dismissed by reason of redundancy. It would also appear from that speech that redundancy pay was calculated with reference to age and years of service with a maximum of 20 years of service.

[24] According to Lord Denning section 13 of the Redundancy Payments Act dealt with cases where a business remained the same but changed hands from one employer to another. Apparently section 13(2) read with section 3(2) provided that in such a case, if the new owner renewed the employee’s contract of employment and the employee accepted it, the employee did not get redundancy payment.

In terms of section 13(3) read with section 2(3) of that Act it seems that the employee also did not get redundancy payment if the new owner asked him to stay on and he unreasonably refused. Lord Denning also made the point that in terms of paragraph 10(2) of schedule 1 of the Contracts of Employment Act of 1963, if the new employer dismissed the employee, the employee’s redundancy pay would be calculated on the basis of the total period of service with both employers.

What is to be observed from Lord Denning’s speech is that the Redundancy Payments Act expressly dealt with both a situation where an employee unreasonably refused an offer of continued employment by the new owner and a situation where the employee accepted such an offer.

The South African Act only expressly deals with the situation provided for in section 41(4) of the BCEA. In both cases the employee had no right to redundancy pay in under the Redundancy Payments Act.

[25] In Mairs (HM Inspector of Taxes) v Haughey [1993] IRLR 554 (HL) the House of Lords had the following to say through Lord Wolf at paragraph [31]:

“Redundancy, whether statutory or non-statutory, involves an employee finding himself without a job through circumstances over which he has no control. It is also a quality of redundancy that it does not give rise to a right to compensation unless the employee has been employed of a minimum period and that the right when it accrues increases, initially, with the period of employment and then subsequently reduces until eventually the employee loses any right of payment upon his reaching normal retirement age. These qualities were fully reflected in the enhanced redundancy payment scheme operated by H&W 1. A redundancy payment has therefore a real element of compensating or relieving an employee of the consequences of his not being able to continue to earn a living in his former employment. The redundancy legislation reflects an appreciation that an employee who has remained in employment for the minimum time has a stake in his employment which justifies his receiving compensation if he loses that stake. It is distinct from the damages to which he would be entitled if his employment were terminated unlawfully. It is also unlike a deferred payment of wages in that the entitlement to a redundancy payment is never more than a contingent entitlement, which no doubt both the employer and employee normally hope will never accrue.”

[26] Barry v Midland Bank plc [1999] IRLR 581 [HL] related, mainly, if not exclusively, to a non-statutory (private) scheme for the payment of severance pay or redundancy pay. It is not necessary to refer to the facts of the case. It suffices to simply note what the House of Lords said through Lord Slyn in part at 583 (paragraph [11]), namely:

“The purpose of the payment here is to provide support for lost income during the period immediately following redundancy. As the industrial tribunal put it, it is to cushion employees against unemployment and job loss. It is not to remunerate for past service (when it would be necessary to have regard to actual service at different periods) even if the payment takes into account years of service to reflect loyalty to the employer. (See Kowalski v Freie und Hansestadt Hamburg [1990] IRLR 447 and Barber v Guardian Royal Exchange Assurance Group [1990] IRLR 240).

In the latter case, at 257, 13, the European Court of Justice said that a redundancy payment ‘makes it possible to facilitate his adjustment to the new circumstances resulting from the loss of his employment and . . . provides him with a source of income during the period in which he is seeking new employment’.”

[27] In the same case Lord Nicholls stated at 584 (at lines 24–30) that the key features of the non-statutory scheme of the company concerned were:

“similar to those of the statutory redundancy scheme, now contained in s 162 of the Employment Rights Act, 1996, but the amounts payable under the bank’s scheme are significantly more generous.”

[28] Lord Nicholls said at 585 (paragraph [25]) that Mr Barry’s claim was based on article 119 (later article 141) of the EC Treaty:

“. . . as interpreted in several well-known decisions of the European Court of Justice. Severance pay is a form of deferred pay within the meaning of article 119, to which an employee becomes entitled in respect of his employment see Barber v Guardian Royal Exchange Assurance Group [1990] IRLR 240 at 257 and Kowalski v Freie und Hansestadt Hamburg [1990] IRLR 447 at p 459.”

Later Lord Nicholls made the point at 587 (paragraph [4]) that in that case the Industrial Tribunal had found that the objectives of Midland Bank’s scheme were:

“. . . to compensate for loss of job and for loyalty to the bank. Length of service and loyalty to the bank which that denotes is an element of the scheme and this increases in importance as length of service increases. This is an unexceptionable finding.”

[29] Later Lord Nicholls turned to the crucial question in the case. He pointed out that “the factors used in the bank’s scheme are inherently apt for calculating severance pay”.

He went on to say:

“Severance pay is or may properly be treated as, compensation for loss of a job. Loss of a job entails loss of the actual salary then being paid. The longer an employee held the job, the greater the disruption. Older employees may be expected to have more difficulty in obtaining a new job, and immediate financial problems may be more acute for employees with children at school. The bank’s scheme gives some recognition to these considerations.”

Lastly Lord Nicholls said:

“In these circumstances, I agree with the Court of Appeal that the bank’s scheme is lawful . . . To decide otherwise would be to compel Midland Bank to abandon its scheme and substitute a scheme where severance pay is treated and calculated, not as compensation for loss of a job, but as additional pay for past work. That could not be right. I am reassured in my conclusion by noting that the same point was decided in the same way by the German Federal Labour Court (The Bundesarbeitsgericht) in case no 10 AZR 129/92, Enscheidungssammlung zum Arbeitsrecht 247 sub 112 Betr VG.”

In Midland Bank’s case Lord Clyde said in part at 589 (paragraph [65]):

“But the primary object of the scheme was to cushion employees against unemployment.”

A little later he said in the same paragraph:

“A further purpose was to give some recognition to past service.”

[30] In Barber v Guardian Royal Exchange Assurance Group [1990] IRLR 240 the facts, in so far as they are relevant to the present matter, were as follows (and I take them as they appear, in the judgment).

Mr Barber was employed by Guardian Royal Exchange Assurance Group (“the Guardian”). He was a member of the pension fund established by his employer which was wholly financed by the employer. That scheme was a “contracted out scheme”. Its members contractually waived the earnings related part of the State pension scheme for which the scheme in question was a substitute. Such members paid to the State scheme only reduced contributions corresponding to the basic flat-rate pension payable under the latter scheme to all workers regardless of their earnings.

Under the Guardian’s pension scheme, the normal pensionable age was fixed for the category of employees to which Mr Barber belonged at 62 for men and at 57 for women. That difference was equivalent to that which exists under the State social security scheme, where the normal pensionable age is 65 for men and 60 for women. Members of the Guardian’s pension fund were entitled to an immediate pension on attaining the normal pensionable age provided for by that scheme. Entitlement to a deferred pension payable at the normal pensionable age was also conferred on members of the fund who were at least 40 years old and had completed 10 years’ service with the Guardian when the employment relationship was terminated.

The Guardian Royal Exchange Assurance Guide to Severance Terms, which formed part of Mr Barber’s contract of employment, provided that, in the event of redundancy, members of the pension fund were entitled to an immediate pension subject to having attained the age of 55 for men or 50 for women. Staff who did not fulfil those conditions received certain cash benefits calculated on the basis of their years of service and a deferred pension payable at the normal pensionable age.

Mr Barber was made redundant with effect from 31 December 1980 when he was aged 52. The Guardian paid him the cash benefits provided for in the Severance Terms, the statutory redundancy payment and an ex gratia payment. He would have been entitled to a retirement pension as from the date of his 62nd birthday. It is undisputed that a woman in the same position as Mr Barber would have received an immediate retirement pension as well as the statutory redundancy payment and that the total value of those benefits would have been greater than the amount paid to Mr Barber.

[31] The first question that the European Court of Justice had to answer in Barber’s case was whether the benefits paid by an employer to a worker in connection with his compulsory redundancy fell within the scope of article 119 of the Treaty and Directive on Equal Pay or within the scope of the Directive on Equal Treatment.

In dealing with this question the European Court of Justice had this to say at 257 (paragraph [13]):

“As regards, in particular, the compensation granted to a worker in connection with his redundancy, it must be stated that such compensation constitutes a form of pay to which the worker is entitled in respect of his employment which is paid to him upon termination of the employment relationship, which makes it possible to facilitate his adjustment to the new circumstances resulting from the loss of his employment and which provides him with a source of income during the period in which he is seeking new employment” (underlining supplied).

The court concluded that the answer to the first question was that:

“. . . the benefits paid by an employer to a worker in connection with the latter’s compulsory redundancy fall within the scope of the second paragraph of article 119, whether they are paid under a contract of employment, by virtue of legislative provisions or on a voluntary basis.”

[32] Reference to some of the South African academic writings and case law may also be appropriate.

Thompson and Benjamin do not deal with the question that has arisen in this matter (see Thompson & Benjamin South African Labour Law at BB1 – 30–31 paragraph 26A).

In their work Labour Relations Law, 1995 Du Toit et al express the view at 518 that severance pay is forfeited if an employee accepts an alternative employment but, unfortunately, they do not substantiate this proposition.

In his article “Severance Pay: The Emerging Legal Issues” (2001) 22 ILJ 2131, Rycroft discusses the question at 2140–2142 within the context of the repealed section 196(3) of the Act. He writes at 2141:

“One interpretation of s 196(3) is that it is only if an employee unreasonably refuses the alternative employment does he/she lose an entitlement to severance pay. If he/she accepts the alternative employment the Act can be read to mean that the entitlement to severance pay survives. This would be in accordance with the view that severance pay is a form of compensation for the loss of accrued rights in the job and a recognition that the employee’s investment in the job or career path has been terminated.

However, it can be argued that this second reading of s 196(3) is contrived and provides little incentive for an employer to arrange alternative employment. The code brings some clarity where it provides:

‘If an employee either accepted or unreasonably refused to accept an offer of alternative employment the right to severance pay is forfeited.’”

It will be seen from this passage that Rycroft highlights the question which has arisen in this case and sets out the two schools of thought on the question without committing himself as to which view he submits is the correct one.

[33] In “Severance Packages: A Labour Law and Income Tax Perspective” (1994) 15 ILJ 447 at 450–451 Strydom and Van der Linde set out the different reasons that have been advanced by different schools of thought with regard to the rationale for the payment of severance pay in the period under the Labour Relations Act 28 of 1956 (“the old Act”).

One is that severance pay is a payment for past services rendered. The view which the two authors prefer is the one to the effect that severance pay is compensation to the employee for his or her loss of job security.

Another one is that it is a price to be paid by the employer for retrenching the employee so as to ensure that the employer does not highly resort to retrenchment.

Yet another one is that it is to soften the blow of a “no fault” dismissal by assisting the retrenchee until he or she has found another job.

I have left out one. Strydom and Van der Linde express the view that the last mentioned reason for the payment of severance pay is the most satisfactory explanation for viewing the payment of severance benefits as one of the guidelines for a fair retrenchment.

This last point must be understood against the background that Strydom and Van der Linde were writing at the time of the old Act when, unlike under the current Act, there was no statutory provision dealing with the right to severance pay.

[34] The question of what the purpose or rationale of severance pay is, is not a new issue in our labour law. During the 1980s and early 1990s a debate raged for some time in this country under the old Act on the purpose or purposes of severance pay.

There were largely two schools of thought then about the purpose of severance pay.

• The one school of thought was that the purpose of severance was, as counsel for the appellant in this matter submitted, to tide the employee over during the period after dismissal when he is unemployed and is looking for another job.
• The other school of thought took the view that the purpose of severance pay was to reward the employee for the loss of his accrued rights to his job irrespective of whether, after dismissal, he spent any period of time unemployed.

[35] Some of the cases that supported the former school of thought were

• Young & another v Lifegro Assurance (1990) 11 ILJ 1127 (IC) [per JP van Niekerk SM],
• Commercial Catering & Allied Workers Union of SA v Status Hotel (1990) 11 ILJ 167 (IC) at 171A [per Arthur de Kock SM] and
• Hlongwane & another v Plastix (Pty) Ltd (1990) 11 ILJ 171 (IC) [per EML Strydom SM].

In Young’s case reference was made to an unreported decision of the Industrial Court which appears to also have been part of the former school of thought, namely, Mdlalose & another v BAC Services CC NHN11/2/1603 where the Industrial Court apparently said:

“It seems to me that the solution to the problem lies in an analysis of the nature of severance pay. What is the purpose of giving an employee severance pay when he is retrenched? In my view the purpose of severance pay is primarily to tide him over while he looks for other employment. Whether this is done by way of extended notice without the obligation to work or more money in his pocket on the day he stops working, does not really matter.”

[36] Some of the cases which supported the latter school of thought were

• Jacob v Prebuilt Products (Pty) Ltd (1988) 9 ILJ 1100 (IC) [per M de Swardt M],
• Ntuli & others v Hazelmore Group t/a Musgrave Nursing Home (1988) 9 ILJ 709 (IC) [per AA Landman SM] and
• Cele & others v Bester Homes (Pty) Ltd (1990) 11 ILJ 516 (IC) [per E Botha M].

Some of these cases placed much reliance on statements made by Lord Denning in Lloyd v Brassey [1969] 1 All ER 382 where he said:

“A worker of long standing is now recognised as having accrued rights in his job; his right gains in value over the years. So much so that if the job is shut down he is entitled to compensation for loss of office. The director gets a golden handshake. The worker gets a redundancy payment. It is not unemployment pay. I repeat ‘not’. Even if he gets another job straight away, he is nevertheless entitled to full redundancy payment. It is in a real sense compensation for long service.”

[37] In terms of section 87(1) of the BCEA the Minister of Labour is empowered to issue Codes of Good Practice after consulting NEDLAC. In terms of section 87(3) of the BCEA anyone interpreting or applying the BCEA is enjoined to take into account any relevant code issued by the Minister in terms of section 87.

Section 203(1) of the Labour Relations Act 66 of 1995 (“the Act”) gives NEDLAC power to prepare and issue Codes of Good Practice.

Section 203(3) of the Act enjoins anyone interpreting or applying the Act to take the relevant Code of Good Practice issued by NEDLAC in terms of section 203 of the Act into account.

Clause 11 of the Code of Good Practice on Dismissals Based on Operational Requirements issued by NEDLAC in terms of section 203 of the Act provides as follows in so far as it is relevant for present purposes:

“(ii) If an employee either accepted or unreasonably refused to accept an offer of alternative employment, the employee’s right to severance pay is forfeited.”
It is clear that, if one takes into account the above provision of the Code, as one is enjoined to by section 203 of the Act, there can be no doubt that, where an employee has accepted an alternative employment arranged by the employer, he forfeits his right to severance pay.

[38] The picture that emerges from all of the above seems to be that:

(a) in terms of the relevant ILO Convention whether or not an employee is entitled to severance pay is determined in accordance with national legislation;
(b) in terms of the Redundancy Payments Act of the United Kingdom that applied at the time of the case in Lloyd v Brassey an employee who accepted the renewal of his employment by the new employer where there had been a change in the ownership of a business had no right to redundancy pay just as was the case with an employee who unreasonably refused an offer of such renewal;
(c) the European Court of Justice took the view in Barber’s case that the purpose of severance pay, within the context of the statutory framework it was dealing with, was to tide the employee over during the period of unemployment after his dismissal while he is looking for another job;
(d) it would appear from Lord Nichols’s speech in the Midland Bank case that in Germany there is at least one court decision of the Federal Labour Court which was to the same effect as the decision of the European Court of Justice in Barber’s case; and
(e) in terms of the Code of Good Practice an employee who accepted the employer’s offer of alternative employment forfeits his right to severance pay.

[39] It is now necessary to deal with the provisions of section 41 of the BCEA and answer the question whether or not the appellant was obliged to pay the individual respondents severance pay.

A reading of section 41 reveals that section 41(2) of the BCEA lays down a general provision. That general provision that, if an employee is dismissed for operational requirements or his services are terminated or terminated in terms of section 38 of the Insolvency Act 24 of 1936, the employee becomes entitled to payment of severance pay.

In section 41(4) the BCEA creates an exception to this general rule. The exception is that an employee is not entitled to severance pay if

“he unreasonably refused to accept the employer’s offer of alternative employment with that employer or any other employer”.

That is the only exception to the general rule that the BCEA expressly provides for.

[40] If it is accepted that the exception to the general rule provided for in section 41(4) is the only exception that the BCEA expressly provides for, it follows that, if the contention advanced on behalf of appellant is to be accepted, the appellant would have to show that another exception is necessarily implied in section 41 of the Act.

That is that, if an employee accepts the employer’s offer of alternative employment with that employer or with another employer, he also forfeits his right to severance pay irrespective of whether or not such alternative employment is reasonable or not. A possible implication will not do in such a case.

[41] The fundamental question that arises in construing section 41(4) is this:

What is the mischief that section 41(4) of the BCEA seeks to address or, put differently, what is the purpose of section 41(4)?

Section 41(4) provides that an employee forfeits his right to severance pay if he unreasonably refuses the employer’s offer of an alternative employment with that employer or another employer.

It seems to me that what the drafters of the Act foresaw was that an employer could arrange an alternative employment for an employee but the employee might reject such alternative employment for no sound reason and simply take the severance pay. The drafters seem to have taken the view that that would not be acceptable and that, if an employee rejected the employer’s offer of alternative employment for no sound reason, he should not be paid severance pay.

It seems that the purpose was to discourage employees from unreasonably rejecting offers of alternative employment arranged by their employers simply because they might prefer cash in their pockets in the form of severance pay.

It can also be said that the BCEA sought to promote employment and to give employers an incentive to take steps to try and get alternative employment for their employees facing dismissals for operational requirements instead of simply giving them money in the form of severance pay and leaving them on their own to look for alternative employment.

In the light of this it seems to me that the purpose of severance pay in our law is not necessarily to tide the employee over while he is looking for another job. If that was the purpose, an employee who immediately walks into another and sometimes even better paying job after his dismissal would not be entitled to severance pay because he would have no need for it.

[42] The only way to reconcile the fact that the BCEA permits this situation and the fact that in terms of section 41(4) the employee forfeits the right to severance pay if he unreasonably refuses the employer’s offer of alternative employment is that section 41(4) is more about rewarding the employer for offering the employee alternative employment than it is about not giving an employee severance pay if could have had another job had he not unreasonably rejected an offer of one.

I say this because, if an employee who is facing dismissal for operational requirements is offered an alternative employment but not by his employer or through the efforts of his employer and he turns it down and, in so doing, acts unreasonably, he does not forfeit his right to severance pay.

[43] Why then would the drafters have sought to have severance pay paid to employees who accept alternative employment? The above question arises because, if the position were that an employee who has accepted the employer’s offer of alternative employment is still entitled to severance pay, there would be no need for section 41(4). I say this because, if an employee does not want to take the alternative employment arranged by the employer but it would be unreasonable for him to refuse it, he would not have to reasonably reject the employer’s offer of alternative employment in order to get severance pay.

All he would need to do would be to accept the offer of alternative employment and the severance pay, work for a short time in the alternative employment and thereafter resign. In that way he would have secured himself the severance pay without rejecting the offer of alternative employment and, thus, running the risk that he might forfeit the right to severance pay if it is later found that his rejection of the alternative employment was unreasonable.

Accordingly, section 41(4) would be completely undermined if the position was that an employee who accepts the employer’s offer of alternative employment with such employer or another employer remains entitled to severance pay.

[44] It seems to me that the effect of section 41(4) is that, where the employer has arranged an alternative employment for an employee who is facing a (possible) dismissal for operational requirements, either in this 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 section 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; and
• the third scenario is where the employee accepts the alternative employment in which event he also forfeits the right to severance pay.

[45] It will be seen from the three scenarios set out above that in neither scenario does an employee get both the severance pay and the alternative employment. However, there is a scenario where he gets neither. That is where he has himself to blame because he has acted unreasonably in refusing the offer of alternative employment. Where he has refused the offer of alternative employment but cannot be said to have acted unreasonably in doing so, he still gets paid his severance pay.

[46] Save for the provisions of section 41(4), the provisions of section 41 and the manner in which severance pay is calculated suggest that the reason for the payment of severance pay has something to do with the years that the employee has devoted to the service of the employer.

However, section 41(4), as already stated earlier, seems to have a lot to do with giving the employertive to try and get an alternative employment for the employee  an incenthan with punishing the employee for unreasonably not taking up a job offer that he should have taken.

What is quite clear to me is that, if section 41 were to be construed to mean that an employee who has accepted the employer’s offer of alternative employment is entitled to severance pay, section 41(4) would become superfluous.

I say this because section 41(4) takes the employee’s right to severance pay away if such employee unreasonably refuses the employer’s offer of alternative employment with that employer or another employer. If it is held that an employee who accepts the employer’s offer of alternative employment with that employer or another employer retains his right to severance pay, there would be no need for an employee to refuse the employer’s offer anymore because, if he refused it he would risk losing the right to severance pay in case his refusal is later found to be unreasonable, but there would be no such risk if he simply accepted the offer, commenced in the new job but resigned shortly thereafter.

A statute should not, generally speaking, be given a construction that will render it or some of its provisions redundant or superfluous if there is a construction that can reasonably be given to it which would not have such effect or result. In such a case he would be entitled to severance pay in circumstances in which a refusal of the offer would have resulted in his forfeiture of his right to severance pay because such refusal would have been unreasonable. So, to avoid that risk and ensure that he gets his severance pay, he accepts the employer’s offer of alternative employment when he knows that he actually doesn’t want it and won’t stay in it.

[47] In the light of all the above it seems to me that the individual respondents’ acceptance of the appellant’s offer of alternative employment with KKS resulted in forfeiture of their right to severance pay.

Accordingly, the commissioner erred in construing section 41 of the BCEA as conferring a right to severance pay to an employee who has accepted the employer’s offer of alternative employment with that employer or with another employer.

[48] The fact that the commissioner committed an error of law is not on its own sufficient to justify that her award be reviewed and set aside. A commissioner is entitled to be wrong in law in certain circumstances without his or her award having to be reviewed and set aside for that reason. However, in certain circumstances an error of law may be such that the award or decision must be reviewed and set aside. One of those is where the Legislature did not intend that the tribunal concerned should have exclusive authority to decide the question of law concerned and the error is a material one (Hira & another v Booysen & another 1992 (4) SA 69 (AD) at 93C–H) [per Nicholas JA].

[49] In this matter there can be no doubt that it was never the intention of the drafters of the Act that the CCMA should have exclusive authority to pronounce on the correct interpretation of section 41 of the BCEA. There can also be no doubt that the error of law committed by the commissioner in this regard was a material one rendering her award susceptible to being reviewed and set aside.

[50] As the matter was unopposed both before this Court and in the court a quo, the issue of costs does not arise.

[51] In conclusion the appeal must succeed.

I make the following order:

1. The appeal is upheld.
2. The order of the court a quo is set aside and replaced with the following one:
“(a) The award issued by the CCMA under case no WE 36152 on 31 July 2001 in a dispute between the Food and Allied Workers Union and Irvin & Johnson Ltd is hereby reviewed and set aside.”

Summary

Courtesy of BLLR

“Commission for Conciliation, Mediation and Arbitration – Arbitration award – Review – Commissioner incorrectly holding that employer who arranged alternative employment with sub-contractor was obliged to pay employees who accepted contractor’s offer – Error of law material – Award set aside.
Severance pay – When payable – Employees who find alternative employment at higher pay immediately after retrenchment not entitled to severance pay.
Severance pay – When payable – Employer not obliged to pay severance pay to employees who accept reasonable offer of alternative employment with sub-contractor.”