In these uncertain economic times, retrenchments have become a reality for many South Africans. It is important to keep in mind that a dismissal based on an employer’s operational requirements must be substantively and procedurally fair.
Retrenching employees may cause a huge financial burden thus when considering retrenchment, one should keep in mind that there is a financial side to it. A retrenchment package may include notice pay, severance pay, pro-rata bonus, ex gratia payment and accumulated leave due.
Section 35(3) of the Basic Conditions of Employment Act, 75 of 1997 (BCEA) states that an employee’s monthly remuneration is four and one-third (4.33) the employee’s weekly remuneration. If an employee earns a monthly remuneration of R5000 the employee earns R1154.73 per week. Section37(1)(a)-(c) BCEA regulates the notice periods, which is one week if the employee was employed for six months or less, two weeks if the employee was employed for more than six months but less than twelve months and four weeks if the employee was employed for more than twelve months except if the employee is employed as a domestic/farm worker. These workers will receive a four week notice period after being employed for six months. If an employee who earns R5000 per months was employed for more than twelve months he/she will receive R4618.94 for the four weeks’ notice.
Section 42(2) BCEA states that an employee must at least receive severance pay equal to one week’s remuneration for each completed continuous year worked. One example of severance pay that is more advantageous than provided for in section 42(2) BCEA is provided by the Motor Industry Bargaining Council (MIBCO). It being two week’s severance pay for each completed continuous year of service for the first four years of service and one week’s severance pay for each completed continuous year thereafter. If the employee earns R5000 per month and has 22 completed continuous years of service, the severance package will amount to (5000÷4.33×22) R25404.16.
According to section 197(2)(d) of the Labour Relations Act, 66 of 1995 (LRA) if a business was transferred to a new employer as a going concern the transfer does not interrupt an employee’s continuity of employment. The implication hereof is that if an employee was employed for twenty years by the previous employer before the transfer of the going concern these years of service will be carried over to the new employer. Even if the employee has only been working for the new employer for two years, the new employer will have to pay a severance package for the twenty-two completed continuous years of service.
With regards to the BCEA, an employee would not be entitled to a pro-rata bonus at the time of the retrenchment, the pro-rata bonus being the proportional part of the bonus. If the employee is contractually entitled to a guaranteed bonus / 13th cheque, he/she must receive a pro-rata bonus. There are also other instances where employees are entitled to a pro-rata bonus such as determined by the Private Security Sector.
Ex gratia payments are done with a sense of moral obligation rather than it being a legal requirement. The amount of gratuity if any is to be negotiated at the retrenchment consultation.
The employee must be remunerated for accumulated leave due on termination of employment. In accordance to section 20(2)(a)&(b) BCEA if an employee works more than twenty-four hours per month, he/she will be entitled to at least twenty one consecutive day leave due or one day for every seventeen days worked. For all practical purposes let us assume the employee works five days per week and no leave was carried over from the previous twelve months of employment and the employee has worked for six months thus he/she will be entitled to (15÷12×6) 7.5 leave days. If the employee earns R5000 per month, his/her average remuneration per day is (5000÷21.67) R230.73. The employer will have to pay (7.5×230.73) R1730.50 for accumulated leave days due.
These are not all the factors one must consider when calculating a retrenchment package there are many more provided for by the relevant Sectoral Determination, Bargaining Council, BCEA and/or LRA. We advise that employers seek professional advice when considering retrenchments.
Contact SEESA to assist you with the retrenchment proceedings.
About the author:
Johan Bekker obtained his B.Com(Law) degree Cum Laude from the University of the Free State and his LLB degree from the University of Potchefstroom. He has been employed by SEESA since May 2019 as a Legal Advisor.