Leave pay entitlement: Different approaches considered

Note: Footnotes omitted and emphasis added

Introduction

[1] Section 20 of the Basic Conditions of Employment Act, 75 of 1997 (BCEA) requires an employer to grant an employee, in each annual leave cycle, 21 consecutive days’ leave on full pay. The employer must grant annual leave not later than six months after the end of a leave cycle, defined as the period of 12 months’ employment with the same employer immediately following the employee’s commencement of employment, or the completion of that employee’s prior leave cycle.

Section 21 of the BCEA requires that an employer must pay an employee leave pay at least equivalent to the remuneration that the employee would have received for working for a period of annual leave. Leave pay must be paid before the beginning of the period of leave, or by agreement, on the employee’s usual pay day (s 21(2)).

On termination of an employee’s employment, s 40 of the BCEA requires an employer to pay the employee the value of any annual leave that is due to the employee in respect of a prior leave cycle but which the employee has not been taken, as well as the value of leave accrued during any current but incomplete cycle.

[2] In these proceedings, the applicants claim the value of annual leave that they contend accrued to them in the leave cycle prior to their respective resignations from the respondent’s employ, and the value of leave accrued during the cycles rendered incomplete by virtue of the termination of their employment.

Matters of common cause

[3] It is common cause that Gottsmann was employed by the respondent from 1 September 2001, and Minny from 18 November 2002. Both resigned with effect from 28 February 2006. In a statement of agreed issues, the parties agreed that the applicants’ claims were claims brought in terms of sections 20, 21, 35 and 40 of the BCEA. The parties have also reached agreement on the quantum of each of the applicants’ claims.

Minny avers that in respect of the leave cycle that commenced on 18 November 2004 and ended on 17 November 2005, he was granted 5 days leave, during January 2006. He deducts the value of that leave and an amount of R3274 paid by the respondent on termination of his employment in respect of accrued leave, and claims a balance of R20 054.00.

Gottsmann claims that in respect of the annual leave cycle that commenced on 1 September 2004 and ended on 31 August 2005, he was granted 10 days leave during November and December 2005. He deducts the value of this leave and the payment of R3286.98 made to him by the respondent on termination of his employment in respect of accrued leave and claims a total R23 899.65.

[4] The sole issue to be determined in these proceedings is whether the respondent is indebted to the applicants for the leave pay that they claim. The applicants contend that the annual leave taken by them was without pay, and that they were not paid the full value of the annual leave that had accrued to them prior to their resignation. The respondent contends that it is not indebted to the applicants, on the basis that each of the respondents was paid a fixed hourly rate of remuneration that was calculated to be an all-inclusive rate, including payment in respect of annual leave and sick leave.

Put another way, the respondent’s case is that the applicants’ remuneration packages were structured so as to pay them the value of their annual leave, as it accrued from month to month, in advance of their taking leave. It was accordingly for the applicants (who to some extent regulated their own working hours) to manage their finances so that when they took annual leave, they had the resources to do so.

Jurisdiction

[5] I deal first with the question of jurisdiction. The applicants’ baldy assert that this court had jurisdiction to entertain their claim pleaded, as it is, in the form of a complaint under the BCEA of a failure by the respondent to comply with section 21 of the Act. The provisions of the BCEA that concern the enforcement of basic conditions of employment require that allegations of non-compliance with the Act must in the first instance be referred to a labour inspector and dealt with in terms of s 68 of the Act.

If necessary, the inspector must issue a compliance order in terms of s 69. Section 70 places limitations on the powers of labour inspectors to issue compliance orders. Section 70(b) provides that if the employee making the complaint is a senior managerial employee, or if the employee concerned earns remuneration in excess of a prescribed threshold, then the labour inspector may not issue a compliance order.

[6] How then must employees subject to these limitations, whether by virtue of their occupation or the level of their remuneration enforce their rights to basic conditions of employment? The BCEA is not entirely clear. When an unfair dismissal claim is referred to this court, s 74 empowers the court to determine any claim for an amount owing to an employee in terms of the BCEA provided that the claim is referred in terms of s 191, that the amount had not been owing for more than a year prior to the date of dismissal, and that no compliance order had been made or other proceedings instituted to recover the amount.

These would appear to be the only circumstances where this court, as a court of first instance, may determine any claim under the BCEA. In a case such as the present, where no unfair dismissal is claimed, the only remedy available to an employee who wishes to recover an amount that the employee contends is owing under the Act is a contractual remedy.

Section 4 of the Act provides that a basic condition of employment (defined in section 1 to include a provision of the Act that stipulates a minimum term or condition of employment) constitutes a term of every contract of employment. There are certain exceptions to this provision, including a term of a contract that is more favourable to the employee than a basic condition of employment (see section 4(c)).

Section 77(3) of the Act confers concurrent jurisdiction on this court (with the civil courts) to hear and determine any matter concerning a contract of employment, irrespective of whether a basic condition of employment constitutes a term of the contract. Any claim to enforce a provision of the Act in circumstances where the employee is denied access to the enforcement measures established by Part A of Chapter 10 of the Act, must therefore be brought under section 77(3) as a claim of breach of contract.

[7] This claim has a long history, having initially been made in the Magistrates’ Court, and for reasons that are not apparent, withdrawn and thereafter filed in this court. Although the applicants claim is not specifically pleaded as a contractual claim (the language of their respective statements of claim is that of reliance on a statutory entitlement) the papers filed are such that I am able to regard references to statutory entitlements (in the form specifically of rights under ss 20 and 21 of the BCEA) as references to the terms of the applicants’ respective contracts of employment.

Little purpose would be served in further delaying the determination of this matter only to require the applicants to formulate their claim with more precision. I intend therefore to treat this matter as a contractual claim brought under s 77(3) of the Act, and to determine it on that basis.

The onus of proof

[8] In relation to the onus of proof, the applicants submit that section 81 of the BCEA provides that a party that alleges a right conferred by the Act must prove the facts that constitute the infringement, and that the party allegedly engaged in the conduct in question must then prove that the conduct did not infringe the Act.

On this basis, the applicants contend that to the extent that they have adduced facts to establish that they have been denied payment of the value of the annual leave that has accrued to them, the respondent bears the onus to establish that its conduct does not infringe any provision of the Act. There is no merit in this submission.

• First, the nature of the applicants’ claim, for the reasons recorded above, is not one that arises from the Act rather than from their contracts of employment.
• Secondly, and in any event, s 81 applies only to Part C of Chapter 10 of the Act, a part concerned with the protection of employees against discrimination for exercising rights under the Act, or, in other words, victimisation.

The applicants’ do not claim that they have been victimised for exercising a statutory right – they in effect seek to have a right afforded them by the statute enforced as a contractual term. In so far as the applicants’ claim is based on a contractual term and a breach of it, they accordingly bear the onus of proof to establish both the terms of the contract and the breach.

In these proceedings, the terms of the contract between the applicants and the respondents are not in dispute, at least not as far as any entitlement to annual leave is concerned. The respondent accepts that the applicants are entitled to 21 consecutive days’ annually leave in each leave cycle, and that the applicants are entitled to be paid for that leave. The applicants’ claim is that the respondent breached their contracts by failing to pay them for annual leave taken and accrued. It is incumbent on the applicants to establish that breach.

Brief summary of the evidence

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The issue

[16] The respondent does not dispute that the applicants were entitled to leave pay, or to be paid the value of any accrued leave pay on termination of their employment. The crisp issue to be decided is whether, as the applicants contend, the respondent breached their contracts of employment by failing to pay them leave pay when they resigned, or whether, as the respondent contends, they were paid their leave pay in advance with the result that nothing further was owing to them on the date of the termination of their employment

Analysis

[17] I deal first with the general principles regulating the payment of leave pay. In so far as s 4 of the Act, read with s 21, requires an employer to pay an employee leave pay equivalent to the remuneration that the employee would have received for working the period of annual leave either before the beginning of the period of leave, or, by agreement, on the employee’s usual pay day.

In my view, there is nothing in principle in this formulation that precludes an employer from paying an employee an all-inclusive rate, i.e. a rate of remuneration that includes the value of leave as accrued from week to week, or month to month, as the case may be.

In effect, by doing so, the employer discharges its obligation to pay leave pay at a date earlier than that required by the BCEA. Payment for annual leave is on these terms is likely, generally speaking, to be more favourable to the employee than the terms stipulated by the Act.

[18] I am mindful that payment of leave pay in advance may potentially undermine the protections established by the Act. Employees engaged on terms and conditions of employment that contemplate payment of an all inclusive rate per hour and under pressure to maximise their earnings might elect not take annual leave, or be reluctant to avail themselves of sick leave when they are incapacitated. A financial incentive for employees not to take leave thus potentially undermines the recreational and restorative purposes that underlie the right to annual leave.

However, the Act requires employers to grant annual leave, and it is incumbent on them to discharge their statutory obligations to ensure that employees take the leave to which they are entitled. Equally, employees are entitled to insist on their rights to paid leave within the periods contemplated by the Act.

As Franklin AJ pointed out in Jooste v Kohler Packaging Ltd [2003] 12 BLLR 1251 (LC), the BCEA constitutes social legislation and prohibits the parties from contracting out of its main provisions. The Act does not contemplate that annual leave will not be taken (at para 3.4 of the judgment). In the present instance, the applicants are skilled employees, and sufficiently financially astute to regulate their financial affairs so as ensure that they take the leave to which they are entitled, and to set aside the leave pay component of their remuneration packages to fund periods of leave.

[19] To sum up: in principle, a term of a contract of employment that requires an employer to pay remuneration for a period of annual leave as part of an inclusive rate for work done, in circumstances where that remuneration is paid as when annual leave accrues and in advance of it being taken, does not contravene s 21 of the BCEA.

[20] I turn now to the crux of this case, i.e. the dispute as to whether the applicants were paid for the periods of annual leave taken and accrued by them. The applicants point to the terms of the fixed term contract of employment originally signed by them, which they aver does not establish the system of payment for which the respondent contends. To refer to this document as a contract of employment bestows undue credit on the drafter – conceptually, the document is confused and stylistically, it is a shambles.

Clause 13, which seeks to regulate rights to annual leave, does not specifically establish the remuneration structure contended for by the respondent. However, there is nothing in the clause that is inconsistent with the respondent’s version that an all-inclusive rate would be paid to the applicants.

The stipulation that “leave conditions are strictly on a ‘no work, no pay’ principle” is consistent with Smart’s evidence that since the value of leave pay was incorporated into the rate paid to the applicants, they would receive “double pay” should the respondent be required to remunerate them for any days that they took annual leave.

[21] The so-called “collective agreement” between the respondent and its employees intended to introduce the arrangements to apply after 1 January 2006 is an equally dismal effort at capturing the respondent’s intention. Although the applicants refused to accept the dispensation introduced by the agreement, the preamble to the agreement and its terms are consistent with Smart’s version that prior to 2006, the respondent’s employees were paid an hourly rate that was inclusive of leave pay.

[22] Finally, the applicants’ evidence ultimately amounts to a denial that they were ever paid leave pay, but for the sum paid to each of them in respect of the last month of their employment. In his evidence in chief, for example, when Minny was asked how he would respond to a proposition that he had agreed to payment of an all-inclusive rate, he responded that this had never been stipulated or mentioned.

Similarly, Gottsmann did not deny that the rate paid to him was all-inclusive; he testified only that he was not paid for periods of annual leave that he took, begging the question as to whether his rate of remuneration was all-inclusive or not. Both applicants were clearly unhappy with the arrangement that Smart insisted should apply from January 2006.

[23] The tenor of the respondents’ evidence (and this is reflected in the terms of their respective letters of resignation) is that the real source of their unhappiness was the fact that the new arrangement would have the effect of reducing their net income, at least until the completion of a leave cycle and their taking annual leave.

On the other hand, Smart’s explanation for the all-inclusive rate, the basis on which it was paid, the reasons for it and the rationale for changing it are all consistent with the documentary evidence, in particular, the invoices addressed to the respondent’s clients and the records of the hourly rates paid to the applicants. Smart’s evidence was not seriously called into question during cross-examination and the over-riding impression left with the court is that the applicants were labouring under a misconception as to the terms of which their remuneration package was structured.

[24] On balance, I find that the applicants were paid a rate of remuneration that was inclusive of the value of annual leave accrued by them, and that the respondent is accordingly not indebted to them. The parties agreed that costs should follow the result.

I accordingly make the following order:

The applicants’ claims are dismissed, with costs.

Courtesy of headnote in [2010] 4 BLLR 439 (LC)

“Application in terms of section 77(3) of the LRA

Basic Conditions of Employment Act 75 of 1997 – Claims for alleged breach of basic conditions – Employees earning above threshold prescribed by Act may not seek compliance orders, but must refer matter to Labour Court as claims for enforcement of contracts.

Labour Court – Jurisdiction – Court having jurisdiction to entertain claims for enforcement of basic conditions of employment by employees earning in excess of threshold provided for in BCEA by virtue of jurisdiction to entertain breach of contract claims.

Leave – Annual leave – Employers not precluded from including leave pay in employees’ remuneration and leaving it to them to fund their own leave when taken – Employees not entitled to claim for accrued leave if paid on inclusive basis.”