S41 (2) of the Basic Conditions of Employment Act (BCEA) provides that “an employer must pay an employee who is dismissed for reasons based on the operational requirements or whose contract of employment terminates or is terminated in terms of S38 of the Insolvency Act, severance pay equal to at least one week’s remuneration for each completed year of continuous service with that employer, calculated in accordance with S35.

The Act, under subsection (4), further provides that if an employee who unreasonably refuses to accept the employer’s offer of alternative employment with that employer or any other employer, is not entitled to severance pay in terms of subsection (2).

One of the most popular situations that arise is where the original service provider’s contract ends, and the contract is given to a new service provider. The original service provider is now in a position where he has employees, but no work available for them and, in turn, will have to consider retrenching his staff and paying them severance.

The original service provider, in many instances, contacts the new service provider to determine whether the new service provider is willing to take over his staff that were previously placed at the contracted site in order to avoid retrenchments and to allow for the uninterrupted continuation of service. The key element in this scenario is that the employer should have played an active role in obtaining alternative employment for their employees with the new service provider, in order to rely on section 41(4).

In the case of Vergenoeg vir Seniors v Stone P N.O others (JA 45/08) [2010] ZALAC 35, a decision by the Labour Appeal Court was handed down, where the Appeal Court ruled that the Respondents were not entitled to severance pay as the appellant (Vergenoeg vir Seniors) negotiated with the new service provider to employ the employees (first respondents), and it was a result of the Appellants efforts that the employees were employed by the new service provider.

This case involved the employees being employed as caregivers by the appellant, and in 2003 the appellant started to outsource the functions of the caregivers to a third-party service provider Fidelity Supercare Services as part of its restructuring. The appellant then proceeded with S189 consultations with the employees and their union. During this time, the appellant negotiated with Fidelity to employ the employees, which proposal was accepted by Fidelity. Once it was accepted by Fidelity, the company then turned to the employees and negotiated with them to take up employment with Fidelity. The employer gave the employees a choice of either accepting retrenchment with full severance pay or accept the procured employment with Fidelity without the severance package. However, on the 22 August 2003 the employees received a retrenchment notice containing the following paragraph:
“Vergenoeg has made an arrangement with another company whereby you could stay in employment. This company is willing to evaluate you to make a possible offer to work as a careworker, here or at another institution. If you want to be evaluated, please inform Mr O’ Callaghan before 9 September 2003. If you accept an offer of employment with this company, you will not be entitled to severance pay, but the leave credit and pro-rata bonus will still be paid out.”

There was no formal acceptance or rejection of the offer, however, the employees subjected themselves for evaluation and accepted and concluded employment contracts with Fidelity and commenced work the day after their last day of employment with Vergenoeg.

After 3 months of employment with Fidelity, the employees pursued a severance pay dispute at the CCMA. The employees claimed they were entitled to severance as they had been dismissed due to operational requirements, whereas the company maintained that they were not entitled to severance as the employees elected to accept alternative employment procured by the company.

At the CCMA, the commissioner found that the company did not play an active role in procuring employment, but rather just facilitated an opportunity for the employees to apply for the alternative employment, and they were therefore entitled to severance pay in terms of S41 of the BCEA.

The matter then proceeded to the Labour Court on review and was subsequently dismissed. Vergenoeg was still aggrieved by the decision of the Labour Court and took the matter to the Labour Court of Appeal on the ground that the Labour Court failed to properly consider or determine the evidence that it was through the efforts of the company that the employees were able to secure alternative employment and that their efforts are ought to be construed as an offer of alternative employment.

The court, in its judgment, referred to the case of Irvin & Johnson Ltd v Commission for Conciliation, Mediation and Arbitration & Others (2006) 27 ILJ 935 (LAC), where Zondo JP interpreted S41 (4) in the following way:
“It seems to me that the effect of S41(4) is that, where the employer has arranged alternative employment for an employee who is facing a (possible) dismissal for operational requirements, either in his employ or in the employ of another employer, three scenarios are possible:
• The one scenario is that the employee unreasonably refuses such alternative employment, in which case S41(4) applies, and the employee forfeits the right to severance pay.
• The second scenario is where the employee reasonably refuses such alternative employment, in which event he is entitled to payment of severance pay.
• The third scenario is where the employee accepts the alternative employment, in which event he also forfeits the right to severance pay”.

“It will be seen from the scenarios above that in no scenario does an employee get both the severance pay and the alternative employment. However, there is a scenario where he gets neither. That is where he has himself to blame because he has acted unreasonably in refusing the offer of alternative employment. Where he has refused the offer of alternative employment but cannot be said to have acted unreasonably in doing so, he will be entitled to severance pay”.

“Save for the provisions of S41(4), the provisions of S41 and the manner in which severance pay is calculated suggest that the amount resonates from the years that the employee has devoted to the service of the employer. However, S41(4), as already stated earlier, seems to have a lot [more] to do with giving the employer an incentive to try to get alternative employment for the employee than with punishing the employee for unreasonably not taking up a job offer that he should have taken. What is quite clear is that, if S41 were to be construed to mean that an employee who has accepted the employer’s offer of alternative employment is entitled to severance pay, S41(4) would become superfluous”.

“In such a case, he would be entitled to severance pay in circumstances in which a refusal of the offer would have resulted in the forfeiture of his right to severance pay because such refusal would have been unreasonable. So, to avoid that risk and ensure that he gets his severance pay, he accepts the employer’s offer of alternative employment when he knows that he actually doesn’t want it and won’t stay in it”. This could never have been the intention of the legislature, particularly S41(4)”.

The facts in Irvin & Johnson are similar to the facts of Vergenoeg, and the Labour Appeal Court found that in light of the fact that it was common cause that the company negotiated with Fidelity to employ the employees, it was through those efforts that the employees secured alternative employment with Fidelity.

Another case of important interpretation is the case of Fidelity Supercare Cleaning (Pty) Ltd v Busakwe NO and others (P301/08) [2009] ZALC165; [2010] 3 BLLR 260 (LC) where the employer’s client, in this case, did not renew its contract and this resulted in the termination of the employees’ employment contract. The employee claimed severance pay for her 17 years of service, and the employer averred that the employee had obtained alternative employment with another contractor, due to the fact that the employer introduced the employee to the new service provider and gave the employee a favourable reference. The employee was thereafter then employed by the new service provider before her employment ended with the current employer. The commissioner, in this case, found that because the employer did not make an offer of employment to the employee, the provisions of S41 (4) would not find application, however, the Judge, in this case, found that this application was grossly misdirected, as an employer cannot offer alternative employment at another employer and moreover it was undisputed that the employee was employed by the new service provider on the basis that the reference was given by the employer. The CCMA found that a reference did not constitute an offer of alternative employment, and the Labour Court agreed with the commissioner’s decision. The Labour Court went further to say that one cannot rely on Irvin & Johnson as it is clearly distinguishable from the current facts as the company did not arrange alternative employment but merely initiated and facilitated it by way of providing an introduction and reference.

From the case law above, we can draw that an employee will not be entitled to severance pay when an employer’s offer of alternative employment with another employer is comprised of instrumental and tangible efforts to procure such alternative employment. Although the alternative employment need not come from the employer, it does not negate the efforts that the employer has conducted to obtain alternative employment for the employees.  When procuring alternative employment with another employer, it is vital for the employer to play an instrumental role in procuring alternative employment with tangible proof to prove its role in procuring alternative employment and not merely facilitating alternative employment.


Article by: Shannel Arikum
Dispute Resolution Official – Pretoria