The question of whether an employee is entitled to severance pay usually arises once a retrenchment has been concluded and there is a dispute referred to the CCMA or a Bargaining Council. An arbitrator dealing with this dispute may only decide whether the employee is entitled to the severance pay, which is a statutory entitlement.


Employers must comply with section 41 of the Basic Conditions of Employment Act (hereinafter referred to as the BCEA).  Section 41(2) of the BCEA states the following:

“ An employer must pay an employee who is dismissed for reasons based on operational requirements or whose contract of employment terminates or is terminated in terms of section 38 of the Insolvency Act, severance pay equal to at least one weeks remuneration for each completed continuous year of service to the employer as calculated in terms of section 35.”

Should the employer be a member of a Bargaining Council, then certain Main Agreements to the Council will stipulate the severance package payable.

If during the retrenchment consultation process parties agree to a severance package that is more favourable than the minimum referred to above, this agreement will supersede the statutory minimum.


There are various limitations on the right to severance pay, which include but are not limited to the following:

  1. Where an employee has a significant break in service (more than 12 months), that employee will not be entitled to severance pay for the years preceding the break in service;
  2. An employee working on a fixed term contract shorter than 24 months will not be entitled to severance pay. However, the employer will be liable to pay the employee one week’s wage for each continuous year of service when the contract exceeds 24 months;
  3. An employee is not entitled to severance pay for the period that he/she worked as an independent contractor for the employer;
  4. Employees are only entitled to severance pay if they are dismissed due to operational requirements. Dismissals related to misconduct or poor work performance etc. will not qualify for severance pay;
  5. When an employee unreasonably refuses alternative employment with the retrenching employer or any other employer, that employee is not entitled severance pay;
  6. If there is a transfer of business in terms of section 197 of the Labour Relations Act and the employees are taken on as a going concern. Therefore, the employees’ continuity of service will not be interrupted, and these employees cannot claim severance pay;
  7. Employees who reach the age of retirement are not entitled to severance pay if they are requested to retire at that age. Nor are they entitled to severance pay should they be allowed to work beyond their retirement age.


An employer, therefore, bears the onus of proving that one of the aforementioned limitations exists to be absolved of the liability to pay an employee severance pay.


Article by: Jamie Moodley

Dispute Resolution Official – Durban