It is common practice for businesses to have a set retirement age stipulated in their contracts of employment. This is usually around 65 years of age. However, with the advancement of medical care and quality of life improvements, employees are often perfectly capable of working beyond this age. Employers may well benefit from such extended service due to their experience.
Thus, we encounter the common phenomenon of post-retirement employment with the same employer. Section 198B of the Labour Relations Act specifically excludes employees who have reached the usual retirement age from the limitations in respect of the length of a fixed-term contract, meaning in essence that those employees can be placed on fixed-term contracts for longer than three months at a time and often renewed repeatedly.
However, it may happen that while such a limited duration contract is in operation, the business considers retrenchment of staff. An uninformed employer may well turn to these post-retirement employees first when considering selection criteria, as these employees would receive the least severance pay. The rationale for thinking so is not absurd; after all, there is a mandatory retirement age. As such, the original contract came to an automatic end upon reaching that age by effluxion of time and a new limited duration contract was concluded, which is what the labour court had held.
The obstacle in this reasoning is hidden in plain sight. However, it required the Labour Appeal Court to step in and elucidate it for the Labour Court in its judgment in early 2021.[1]
Section 41 of the Basic Conditions of Employment Act[2] provides, among others, that an employee should receive one week’s remuneration for every completed year of continuous service. A perceived difficulty is that “continuous service” is not defined in the act. Furthermore, in terms of Section 84[3] it stipulates, “previous employment with the same employer must be taken into account unless the break was for more than a year.”
The LAC reasoned in 2021 – that “severance is to be considered as an additional payment from the employer meant to soften the blow of unemployment.”
This substantially affects the original presumption that these fixed-term, post-retirement employees would only be entitled to the latter portion of their severance. It is apparent from the case law that where an employee continued to work on an uninterrupted basis for the same employer post-retirement, the fact that the employee had reached the mandatory retirement age and was placed on a new limited duration contract thereafter, does not interrupt the employees’ employment for purposes of calculating severance.
On the presumption that an employee takes up an offer for continued employment post-retirement, the employee can now be secure with the knowledge that should he/she be retrenched during this period, the full severance calculated from the start of their continuous employment will have to be paid. We, therefore, caution Employers to take this into account when considering retrenchment in general.
Contact your nearest SEESA office if you require any assistance with the calculation of Severance Benefits. Alternatively, SMS the word “SEESA” to 45776 for an expert legal advisor to contact you.
About the Author:
Charl Vollgraaff started his career at SEESA in 2016 and is currently a Labour Legal Advisor at SEESA’s Port Elizabeth branch. He was admitted as an Attorney in 2010 after completing his LLB degree. He also holds a LLM Master’s degree in Labour Law.
Resources:
- Barrier v Paramount Advanced Technologies (Pty) Ltd [2021] 7 BLLR 643 (LAC) (18 February 2021)
- Section 41(1) of the Basic Conditions of Employment Act, 75 of 1997.
- Section 84(1) of the Basic Conditions of Employment Act, 75 of 1997.
- Mohamed, Loser, Gudelsky “Retrenched in retirement: When time no longer equals money” April 2021 (Accessed online: www.cliffedekkerhofmeyr.com)
- “Dealing with Retrenchments” (Accessed online – www.ccma.org.za)
[1] Barrier v Paramount Advanced Technologies (Pty) Ltd [2021] 7 BLLR 643 (LAC) (18 February 2021)
[2] Section 41(1) of the Basic Conditions of Employment Act, 75 of 1997.
[3] Section 84(1) of the Basic Conditions of Employment Act, 75 of 1997.