The long-term effects of Covid-19 on businesses have become clearer. Short-term interventions, such as taking annual leave, temporary lay-off, short time and pay cuts, may no longer be appropriate. It may be necessary for a more permanent measure; i.e. retrenchment. But what payments are employees entitled to if they are retrenched?

The calculation of the payments associated with retrenchment can be rather complicated where employees have been temporarily laid off without pay or have been working short time on reduced pay.

The origins of an employee’s entitlement to leave pay, notice pay and severance pay, respectively, are different. Should the calculation of these entitlements be approached differently? The following is a summary of our views and conclusions.

Leave pay

As a general rule, an employer must upon termination of employment pay an employee one day’s remuneration in respect of every 17 days on which the employee worked or was entitled to be paid (section 40(c)(i) of the Basic Conditions of Employment Act of 1997(the BCEA)).

Based on subsection 40(c)(i), no leave would have accrued to an employee during a period of temporary lay-off. Although the section does not refer to reduced work hours, it seems logical that leave accrual should be reduced proportionately [A sensible way to go about it would be to calculate leave at one hour’s leave for every 17 hours worked – similar to that provided for in section 20(2)(c) of the BCEA].

Notice pay

If an employee happens to be on lay-off without pay at the time of retrenchment, the employer has no obligation to pay the employee during the period of notice, or to pay the employee in lieu of notice. Where the employee is working short time at reduced pay, this arrangement will simply continue during a period of notice. There is no reason why payment in lieu of notice should be any different.

Severance pay

Upon retrenchment an employer must pay an employee severance pay equal to at least one week’s remuneration for each year of continuous service with that employer.

A literal interpretation of section 35(5) of the BCEA, would have the consequence that an employee who happens to be on temporary lay-off without pay at the time of retrenchment, would not be entitled to any severance pay whatsoever, irrespective of the number of years’ service. An employee who happens to be working short time at the time of retrenchment would also be severely prejudiced. This could not have been the intention of the legislature. A literal interpretation would also be inconsistent with the primary purpose of severance pay; i.e. to provide a measure of interim financial security to the retrenched employee during the search for suitable alternative employment.

Where employees would be prejudiced due to having been laid off or working reduced work time, we would encourage employers to calculate severance pay with reference to the employees’ remuneration immediately prior to the national state of disaster.

Sectoral determinations and bargaining councils

Sectoral determinations and bargaining council agreements may contain provisions that trump the provisions of the BCEA to the extent that they are different.

Other questions

As with our previous article, we have tried to look beyond a literal interpretation of the law. Instead we have proposed what we consider to be fair to both employers and employees.

Again, the commentary above may not adequately cover all possible scenarios. Readers are welcome to post their comments and questions.

The reasoning behind the points discussed above can be found in our more detailed article - CLICK HERE