In terms of Section 41(4) of the Basic Conditions of Employment Act (BCEA), an employee who is dismissed for operational requirements is not entitled to severance pay if the employee “unreasonably refuses to accept the employer’s offer of alternative employment with that employer or any other employer”.

The Labour Appeal Court (LAC) previously set out in the case of Irvin & Johnson Ltd v Commission for Conciliation, Mediation & Arbitration & others [2006] 7 BLLR 613 (LAC), the three scenarios which may arise, where:

  1. The employee unreasonably refuses such alternative employment, in which Section 41(4) applies, and the employee forfeits the right to severance pay.
  2. The employee reasonably refuses such alternative employment and is entitled to severance pay.
  3. The employee accepts alternative employment and forfeits the right to severance pay.

The Court further examined the purpose of Section 41(4). It stated that its purpose was to discourage employees from unreasonably rejecting offers of alternative employment arranged by their employers simply because they might prefer cash in their pockets as severance pay. The Court further stated, “It is not necessarily to tide the employee over while looking for another job. If that was the purpose, an employee who immediately walks into another job and sometimes even better paying job after his dismissal would not be entitled to severance pay because he would not have needed it.”

The LAC held that Section 41(4) of the BCEA ultimately rewards an employer for offering or securing alternative employment for an employee.

In the Irvin & Johnson case, the retrenching employer made it a condition that the successful bidder for the services it was outsourcing would have to employ its existing staff engaged in the service being outsourced. Therefore, no severance pay was due to the retrenched employees.

In the case of Servest Landscaping Turf Maintenance (Pty) Ltd v SACCAWU obo Thisani and 20 Others (C464/2019) [2022] ZALCCT 54, the Labour Court had the task of determining whether severance pay was due to the retrenched employees. In this case, a site previously held by Servest went to tender and was lost to the competition Bidvest. Employees who previously worked for Servest were taken over in terms of new employment contracts by Bidvest. 22 Servest employees claimed severance pay under Section 41(4) BCEA. Servest set the ball rolling by approaching Bidvest to take on staff it could not accommodate. Servest showed that they followed up on Bidvest’s progress in recruiting its staff and allowed Bidvest to use its facilities extensively in the recruitment process. Servest kept a close eye on Bidvest’s recruitment of its staff and made its premises and facilities available to Bidvest to ensure that nobody would be left unemployed and that staff moving to Bidvest would not lose a day’s work. The result was that everyone who wanted to be employed by Bidvest was.

Referring to I&J, the Court concluded, “From the dicta above, it is clear that the LAC did not envisage that only the existence of a binding obligation on another employer to employ retrenched workers could justify relieving the retrenching employer of the obligation to pay severance pay. The Court envisaged that a retrenching employer would not be required to pay severance if it arranged the alternative employment or the offer was brought about from its efforts.” The Labour Court held that employees were appointed through the efforts of Servest and that Servest played an integral role in facilitating the employment of the employees by Bidvest. Therefore, Section 41(4) of the BCEA applied, and no severance was due to the employees.

The Court didn’t comment on what the efforts of the retrenching employer should include or the point at which it could be said that the employer’s efforts had satisfied the provisions of S41(4). Indeed, it would be difficult to compile an exhaustive list of what is required from retrenching employers to be relieved of their requirement to pay severance benefits. The Court did, however, refer to the case of Fidelity and commented as follows (at 12):

“By contrast, in Fidelity Supercare Cleaning (Pty) Ltd v Busakwe NO and Others [2010] 3 BLLR 260 (LC), the retrenching employer only provided a favourable reference for a former employee, who was employed on the strength of that reference by the new company, which had taken over the contract formally serviced by it. The Court held that the facts in the matter were distinguishable from Irvin and Johnson because the old employer did not “arrange” alternative employment but simply facilitated it by providing a reference.”

It is thus clear that the Fidelity case was an example where the retrenching employer did not satisfy the requirements of Section 41(4) of arranging alternative employment, notwithstanding their efforts. It is submitted that, at the very least, the retrenching employer must engage directly with the new employer with the purpose of securing alternative employment. The results of that process of engagement must then result in an offer of alternative employment. Should the employee reject the offer unreasonably, they will not be entitled to severance pay.

An employee will not be entitled to severance pay if another employer employs the employee, and the retrenching employer can demonstrate that it secured alternative employment through its efforts. At a minimum, a retrenching employer must demonstrate that it played an influential role in securing alternative employment for an employee with another employer if it seeks to rely on Section 41(4) of the BCEA.

Article by Anesta Kruger

Dispute Resolution Official at Consolidated Employers Organisation (CEO SA)