When a retrenchment is unfair, what happens to the severance you’ve already paid the employee?
In the recent unreported case of Coca Cola South Africa (Pty) Ltd v Ndlovu and others (case no D813/11 delivered on 7 May 2013), the Labour Court dealt with the issue of if severance pay: Must be taken into account when an employee is awarded compensation if it is found that he was unfairly dismissed.
In this case, the employer retrenched an employee who was paid a severance package. The employee subsequently referred an unfair dismissal dispute to the CCMA. The arbitrator found that the employee's retrenchment was unfair and ordered the employer to reinstate the employee and give him seven months' back pay.
The arbitrator specifically declined to deal with the issue of the employee's severance pay:
- The employer took the arbitration award on review because, among other things, the arbitrator did not order the employee to repay his severance package despite the employee having been retrospectively reinstated.
The employer's contention was that the employee had sustained no loss which justified him retaining the severance package. The result of the award was that the employee was reinstated and allowed to keep his severance payment of approximately R1.3 million.
- The Labour Court found that the arbitrator was obliged to deal with the repayment of the severance package because the severance payment only occurred because the employee was retrenched. Because the arbitrator did not do this, an irregularity was created that could be reviewed:
-The court stated that because the employee was reinstated in his previous position, it was as if no dismissal had taken place. Under these circumstances, the employee would have suffered no loss which was not addressed by an order of reinstatement with full back pay.
Because of the relief granted by the arbitrator, the court found that the employee was no longer entitled to the severance package, which was intended to soften the blow of the retrenchment. Chetty AJ concluded that:
There can be no justification for a result where [the employee] is reinstated with full back pay and retains a severance package which far exceeds the amount of his back pay. It is a decision that a reasonable decision maker would not reach.
This case sets a new principle that, in circumstances where an employee is retrenched and subsequently found to have been unfairly dismissed, the payment of the compensatory relief is subject to the employee repaying him severance package.
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Aadil Patel is the director and national practice head: Employment at Cliffe Dekker Hofmeyr. |
| Kirsten Caddy is an associate in the employment practice at Cliffe Dekker Hofmeyr. She studied at the University of Pretoria and graduated cum laude for both her BCom (Law) and LLB degrees. Kirsten also obtained a post-graduate diploma in labour law from the University of South Africa. |
