Forfeiting severance pay

Employees are entitled to severance pay when they are retrenched due to their employers’ operational or economic reasons. The entitlement in the Basic Conditions of Employment Act (BCEA) amounts to a minimum of one week’s remuneration for every completed year of service. However, not every retrenchment results in payment of severance pay. In other words, an employee may be retrenched without severance pay.

Section 189 of the Labour Relations Act (LRA) requires employers to follow a consultative process when their employees are affected by business restructuring. Part of this process is to identify alternative positions in which the affected employees may be accommodated to avoid their retrenchment.

If an employer fails to do this, any resulting retrenchment may be deemed unfair. But what happens if an employee refuses to accept an alternative position offered by their employer?

Understandably, not all jobs on offer may meet the expectations of employees. Some employees have their own career paths carefully mapped out in their minds that any deviation may be a set back they are not willing to accept. Employees may decline alternative jobs offered for a variety of reasons.

Since no employee may be forced to accept a job they do not want, their employer may not have a choice but to retrench them. However, the employer may decide that the employee’s refusal of an alternative job was unreasonable. If the refusal was indeed unreasonable, the BCEA provides that the retrenched employee loses their entitlement to severance pay.

Severance pay is a small recognition and compensation for the years of service offered by an employee who, through no fault of their own, is losing their job. An employee who has an option but unreasonably refuses a job offer does not deserve the recognition or compensation. Therefore such employee would forfeit their entitlement to severance pay.

However, before deciding to withhold severance pay the employer needs to carefully consider the employee’s reasons for refusing a job. For example, if the alternative job is a demotion or a fixed-term contract, refusal may not be unreasonable. Refusal may also not be unreasonable if the alternative job requires skills the employee does not have, even if the job is higher in status and possibly pays better than the employee’s dissolved job.

A reason such as that the employee has previously done the alternative job and would probably be bored is not good enough. After all, restructuring, especially when occasioned by economic hardships, is expected to lead to some changes that may require adjustments by the employees.  

Lesson: An employee who unreasonably refuses an alternative job may be retrenched without severance pay.