In our previous article, we discussed the entitlement to severance pay in terms of Section 41 of the Basic Conditions of Employment Act (BCEA) and the circumstances under which the benefit arises. Severance pay entitlement arises when an employee’s contract of employment is terminated for operational requirements. In terms of the section, the right to severance pay is thus limited to a specific reason for termination.

The Labour Relations Act (LRA), as amended, makes provision for the entitlement of severance pay to employees whose fixed-term contracts come to an end. Section 198B of the LRA provides the requirements for using fixed-term contracts to employees earning below the current threshold (R 241 110.59 per annum).

Section 198B (10) deals with the provision of severance pay in terms of an employer who employs an employee on a fixed-term contract. Section 198B(4)(d) deals with fixed-term contracts whereby the employee is employed for a “specific project that has a limited or defined duration”.

Suppose the limited duration contract exceeds 24 months. In that case, the employee will be entitled to severance pay upon termination of the contract, which is calculated in accordance with Section 35 of the BCEA, dealing with the calculation of wages.

The employee will, therefore, only be entitled to severance pay in terms of this section if all the following criteria are present:

  • The employee earns below the earning threshold of R 241 110.95 per annum;
  • The employee has been employed for a limited duration to work on a specific project;
  • The contract of employment exceeds 24 months.

There is also a further requirement that the employer must employ less than ten employees (as per Section 198A (2)).

Although Section 198 generally refers to “a fixed-term contract” or “successive fixed-term contracts”, Sub-section 10 only refers to “a fixed-term contract”. For Section 198(10) to apply, the fixed-term contract must be a single-term contract exceeding 24 months, and the use of successive contracts, all less than 24 months, will not invoke this sub-section even if the accumulative period of successive contracts exceeds 24 months.

Interestingly, the legislator chose to use the word “expiry” of the fixed-term contract. Taken at its normal meaning, the term “expiry” would only refer to a “natural coming to an end” of the contract. However, most fixed-term contracts in practice include provisions for early termination relating to misconduct, incapacity, or operational requirements. At first glance, it would then appear that the provision would apply only in circumstances where the contract comes to a natural end. However, this view remains to be confirmed by the Courts.

Finally, Section 189 provides for compulsory consultation between employers and employees regarding the quantum of severance payments. Section 198 (10) does not provide for such consultation. It is submitted that employers only need to pay the value of 1 week’s wages per completed year of service, subject to any applicable provision in a collective agreement.

The employee will not be entitled to severance pay if, prior to the expiry of the fixed-term contract, the employer offers the employee employment or procures employment for the employee with a different employer, which commences at the expiry of the contract and on the same or similar terms (Section 198B (11)).

Lauren Moodaley

Dispute Resolution Official at Consolidated Employers Organisation (CEO SA)