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The little-known clause lurking in the BCEA that affects how you pay severance pay...

by , 29 July 2015
Why am I telling you this? Because it's important when you're working out severance pay and you have to keep an employee's full length of service in mind.

The Basic Conditions of Employment Act (BCEA) basically says you have to take the employee's full length of service into account when working out severance pay. And if there's a break in service for less than a year, you must take this into account too (Section 84(1)).

Fair enough?

Now let me paint a different picture… What if you re-hire an employee who retired so you could keep his skills? Still with me?
Great. Now let's say six months down the line you need to retrench him. Do you have to pay his package looking at all his years of service? Or just the last six months?
Let's look at a case…
Worried about making mistakes in your employment contracts?
Wonder if there are some extra clauses you could include that might protect you more in the future? 
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Case Law: Rogers v Exactocraft (Pty) Ltd (C 1142/10) ZALCCT (16 April 2014)
Rogers worked for the company for 21 years. He retired at the company's compulsory retirement age of 65. The next day, he started a fixed-term contract for two years with the employer. It had a clause saying they could end the contract with three months' notice. They did this so they could keep his skills and he was a valuable employee. 
The employer then had to dismiss him for operational requirements with three months' notice, before the end of his contract.
Even though this case also looks at the procedural and substantive circumstances of the retrenchment, we're only going to look at it from the point of severance pay.
This is how the case unfolds:
  • Rogers said the dismissal wasn't for a fair reason or in line with a fair procedure.
  • He claimed compensation for unfair dismissal under the LRA, severance pay in line with the BCEA, and damages for short notice.
  • Exactocraft said the dismissal was for a fair reason. Namely its precarious financial position and they did follow a fair procedure in terms of the LRA.
  • The Labour Court said severance pay is both a form of compensation for a no-fault termination of the contract of employment and as recognition of the employee's 'investment' in the company. And for when there's unexpected termination of expectations. In this situation, the employee's expectation was for another two years of a job.
  • The court said it would be strange for the employee to expect severance pay for the 20 years before his retirement. It said he couldn't expect this because of his re-employment when he didn't have a right to severance pay on retirement.
  • When it comes to severance pay as outlined above, the company didn't need to compensate the employee on retirement. This is because it wasn't a dismissal but a termination of the contractual relationship.
  • The provident fund takes care of the employee's investment in the company. 

What does this mean for you?
The Labour Court didn't stick to the literal interpretation of the BCEA. This judgement is a sensible and fair decision and it frees you to enter into post-retirement contracts without worrying about paying a severance package.
Click here to find out how you can get sample templates and advice on how to make sure you hire fixed-term employees legally and in line with the Labour Relations Act changes... 

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