The Basic Conditions of Employment Act 75 of 1997 (BCEA) needs amending to change the basis on which employees claim severance benefits. Only fault, in the sense of gross or serious misconduct, should deprive an employee of the right to notice pay and severance benefits, irrespective of an employer’s right to terminate employment fairly. A right to severance pay cannot depend on the employer’s reason for termination.
At present the right only accrues if the employer provides operational requirements as the reason – see section 41 of the BCEA. But if the Labour Appeal Court (LAC) treats a reason related to gross misconduct as being part of risk management and based on operational requirements will employees not try to claim a right to severance pay in terms of section 41 of the BCEA?
Clearly it was never intended that an employee could claim severance pay in such circumstances but the law needs to be amended to clarify the situation. The simple solution is not to make the right dependent on the employer’s reason for termination. Forfeiture of the right must depend on the employee’s fault; if it is gross or serious (“cause recognised by law”) the employee should forfeit not only the right to any notice pay but also any right to any severance benefit.
In other words it is submitted that employees should only forfeit rights to notice and severance benefits if they materially breach their contracts. This would include gross or serious misconduct because section 37(6)(b) of the BCEA reads:
“Nothing in this section (Notice of termination of employment) affects the right – (a) … (b) of an employer … to terminate a contract of employment without notice for any cause recognised by law”.
Ever since the early 1990s and again recently the LAC has treated termination related to misconduct as being part of risk management and based on the operational needs of employers.
The LAC has always understood the overlapping nature of the problem. In Anglo American Farms t/a Boschendal Restaurant v Komjwayo (1992) 13 ILJ 573 (LAC) at 590 per Thring J, the following passage from an arbitration award of Martin Brassey SC was quoted with approval:
“Conventional wisdom has it that there are three grounds of dismissal: dismissal for misconduct, for incompetence/incapacity (which I shall, for simplicity, call dismissal for incapacity) and for operational requirements. The categories cover the field: in the first two, there is work for the employee to do, but he cannot be trusted to do it properly; in the third, he can do the work, but there is none for him to do. That they overlap is undeniable.
Dismissal for theft, for example, is normally seen as dismissal for misconduct; but it can also be regarded as dismissal for incapacity, because the employee is revealed as someone who lacks one of the qualities – trustworthiness – necessary for the job; and, with effort, it can even be described as dismissal for operational reasons, because an employer obviously cannot run a business with untrustworthy employees. The overlap illustrates that (absenting any improper motive, like victimization or union bashing) we are ultimately asking a single question: did the dismissal make commercial sense in the circumstances?”
Presently employees whose contracts have been fairly terminated for reasons related to conduct or capacity, or both, do not have any legal right to claim any severance benefits because of the wording of section 41 of the BCEA.
The BCEA is also not giving proper effect to the 1982 ILO Convention 158 on termination of employment which makes it clear that fault is only relevant when deciding whether employees forfeit notice and severance benefits. The Convention of 1982 obliges employers to provide employees with reasonable notice (or payment instead thereof) and some form of severance benefit, unless the reason for such termination is related to gross or serious misconduct.
South Africa has not fully adopted the ILO Convention. In terms of the common law and the BCEA employers are only allowed to terminate summarily (without any notice) if they can prove a material breach of contract, which is really the same as saying gross or serious misconduct. But unlike the ILO Convention section 41 of the BCEA only obliges employers to pay severance benefits (severance pay) if the reason for termination is based solely on operational requirements.
In other words we have the unacceptable situation where employers are allowed to terminate when there is ‘no-fault’, such as illness, injury or poor performance, but those employees do not have any right to claim any severance benefit!
See the earlier blog posts for further arguments in favour of amending the BCEA:
LAC: ‘Dismissal’ of employee – operational requirements & risk management
Employment termination: ‘no-fault’ when considering valid and fair reason?
These are some extracts from the recent Labour Appeal Court judgment – Miyambo v CCMA (PPC Ltd) [2010] 10 BLLR 1017; [2010] JOL 25840 (LAC) per Patel JA (McCall & Hendricks AJJA concurring) – para [13]:
“It is appropriate to pause and reflect on the role that trust plays in the employment relationship. Business risk is predominantly based on the trustworthiness of company employees. The accumulation of individual breaches of trust has significant economic repercussions. A successful business enterprise operates on the basis of trust”.
“In De Beers Consolidated Mines Ltd v CCMA & others [2000] 9 BLLR 995 (LAC) at paragraph [22], the court, per Conradie JA, held the following regarding risk management:
‘Dismissal is not an expression of moral outrage; much less is it an act of vengeance. It is, or should be, a sensible operational response to risk management in the particular enterprise. That is why supermarket shelf packers who steal small items are routinely dismissed. Their dismissal has little to do with society’s moral opprobrium of a minor theft; it has everything to do with the operational requirements of the employer’s enterprise’.”
Very interesting argument. Question? Does poor performance in every instance equal “no fault? I can understand illness.
Hi Linden, thanks for your comment and question.
The short answer is yes because fault is only relevant to the forfeiture of benefits and not the right to terminate.
The common law and the BCEA split the problem of employment termination into two essential parts to ensure lawfulness and fairness.
The 1982 ILO Convention does the same except that a right to severance benefits is suggested in addition to notice benefits.
#1 Did the employer have a valid and fair reason to terminate?
Fault is not mentioned but the employer’s trust (by conduct) or confidence (by performance, injury or illness) must have been destroyed or seriously damaged.
#2 Did the employee deserve to forfeit the benefits of reasonable notice? Only when there was serious or gross misconduct (real fault or “cause recognised by law” – BCEA).
In other words subject to payment of notice pay, poor performance could be a valid and fair reason to terminate, because the LRA states fairness need only relate to conduct (no mention of misconduct) or capacity (no mention of incapacity or poor performance).
To sum up: if our entire legal system is reformed employers can always terminate for a valid and fair reason and should pay notice and severance pay, except where the dismissed employee’s conduct was serious or gross (real fault).
Provided employers pay notice and severance pay they are allowed to terminate fairly when the reason is based on the employer’s operational requirements, because there is no question of any employee’s fault.
At present there is virtually an “all or nothing” approach with no attempt at balancing the rights of both parties.
If the termination relates to conduct or capacity and is regarded as unfair, reinstatement or compensation is ordered.
But if it is regarded as valid and fair the dismissal is upheld with the employee not being awarded anything.
Employers who terminate employment when there is no real fault (“cause recognised by law” as sufficient) breach the employment contract by acting unlawfully, and it should follow that it is also unfair.
But if the employer terminates on reasonable notice it will be lawful but could be unfair under the LRA.
What happens to benefits like Medical Aid, Travel Allowance etc. when you are retrenched? Should the value of the contributions be included in the severance package? Surely it is not fair to let an employee walk away with less than what she earned in total on a monthly basis and now she must pay these additional expenses (stuff like medical aid is more of a necessity than a perk) while unemployed?
Hi Miranda and thanks for the comment and question.
Unfortunately the BCEA only provides for severance pay based on the remuneration that the employee was receiving on the date of termination.
That amount is very often on a ‘cost to company’ basis.
The monthly amount is then used to calculate the remuneration for one week [monthly amount divided by 4.3 to arrive at a week].
The BCEA then entitles the employee to that amount [one week’s pay] for every year of past service but only if the reason for dismissal is based on operational requirements.
In other words the payment is regarded a compensation for past service.
Unless there is a biding contract to pay anything in future the employee forfeits all rights to the benefits you have mentioned.
Remember the labour laws simply grant employees the right not to be unfairly dismissed and do not guarantee a job for life nor any part of the future.
That means that businesses can always end the relationship fairly and lawfully for operational needs even when there is no fault on the part of the employee.
All employees have to accept that they have to look after themselves and cannot expect businesses to do that for them.
Life is hard and not necessarily fair and it gets worse as we grow older!
I have today posted a blog where a senior manager was fairly dismissed for a reason related to capability [poor performance].
There is nothing in the judgment to suggest that she received notice pay, although clearly she should have been paid a ‘reasonable’ amount instead of notice.
Because the reason for dismissal was related to capacity she was unable to claim any severance pay at all.
How fair is that when the ILO Convention of 1982 suggests that employers should pay severance benefits in such circumstances because there was no fault on her part.