Felix Musukubili
This piece communicates payment of severance pay that accrues to employees who are unfairly dismissed from employment, who dies while in employment, resign or retire on reaching the age of 65 years as provided for in section 35 of the Labour Act, 2007 (Act no 11of 2007), hereinafter referred to as the Labour Act and interchangeably the Act.
Generally, severance pay applies in retrenchment instances, premised on collective terminations or dismissals at the behest of the employer, based on limited grounds of operational requirements.
These include re-organisation, transfer of the business, the discontinuation and reduction of the business for economic or technological reasons.
These requirements are contained in section 34 of the current Labour Act, albeit no longer limited thereto as was the case with the repealed Labour Act of 1992.
The Labour Act has widened the grounds for payment of severance pay to various categories of employees beyond the limited confines of retrenchments.
The Act, generously provides for severance payment to employees on the grounds listed under section 35 (1) of the Labour Act.
In terms thereof, employers are enjoined to pay severance to employees who have completed 12 months’ continuous service with such an employer under the following grounds: where the employee is dismissed (for unfair reasons), dies while in employment, resigns or retires after reaching the age of 65 years.
The word ‘or’, contained in section 35 (1)(c) of the Act, is a conjunction used to link two alternatives, which are either that the employee dies or resigns from his/her employment, or retires on reaching the age of 65 years, albeit normal retirement is generally at 60 years.
The word ‘must’, used in section 35 (1) of the Act, does not afford employers any discretion.
It is mandatory and peremptory, and not permissive or directory as pointed out by the Supreme Court in the case of William Torbitt and others v International University of Management.
The requirement to pay severance pay applies in the same manner as payments of accrued leave days and other termination benefits adumbrated in section 37 (1) of the Labour Act.
Consistent with the above, in Gibeon Village Council v Uaaka [2021], an arbitrator issued an award in favour of the resigned employee, who claimed severance payment at resignation.
In the circumstances, the employer refused to pay the benefit and subsequently appealed the award of the arbitrator to the Labour Court.
In the matter, the court held that severance payment in resignation instances is governed by section 35 (1) (c) of the Labour Act.
Therefore that, in the normal run of things, the respondent (resigned employee) is entitled to severance pay.
Accordingly, the court ordered payment with interest accruing at a rate of 20% from the date of the award.
Section 35 (2) of the Act, on the other hand, outlines the disqualifying criteria for payment under section 35 (1) to include where the employee is dismissed fairly on the grounds of misconduct or poor work performance; where the employee refuse to be reinstated after an unfair dismissal, and if the employee unreasonably refuses to accept employment on terms and conditions not less favourable than those that applied to him or her immediately before termination of employment.
This provision was cemented in Schmitz Service CC v Titus & Others (NLLP 2014), where it was held that payment of severance pay does not apply to each and every employee who separates from his or her employment, particularly under section 35 (2) of the Act.
Termination on account of resignation, contemplated in section 30 of the Labour Act, entitles the resigned employee to severance payment, provided that the required notice is served and the employee has completed 12 months continuous service with the employer.
Twelve (12) months “continuous service” with the same employer is a prerequisite for the accrual of the benefit.
Continuous service for this purpose means any period of employment that an employee worked for an employer and includes any period of leave of absence granted, any period of suspension, period from the date of dismissal to the date of reinstatement, if the employee is reinstated and the period of a strike or lockout that complies with the Labour Act.
Section 35 (3) of the Act, tabulates the accrual formula of severance pay. In that, it is an amount equal to at least one week’s remuneration for each year of continuous services completed with the employer.
The formula for calculating severance pay is provided for in section 10 (3) of the Act by dividing the monthly rate of the employee’s remuneration by 4.333 to arrive at weekly rate.
It is important to know that the amount payable as severance pay does not take away the employee or beneficiary’s right to any other amount that the employer is obliged to pay him or her. §§Further, accrued severance pay to an employee is not affected by termination of his or her contract by virtue of death of that employee.
The employer is not absolved from his obligation to pay severance pay under section 35 of the Labour Act to the employee’s surviving spouse, the beneficiaries or his estate.
In an event of a dispute over the payment of severance pay – for instance where the employer refuses to pay this benefit, the aggrieved complainant or beneficiary has recourse to two options.
The first is to the labour inspectorate under the Ministry of Labour, Industrial Relation and Job creation.
In terms of section 126 Act, labour inspectors have powers to issue compliance orders to employers who fail to comply with any provision of the Labour Act, including the provisions of section 35 of the Act.
This is the quickest intervention available to secure payment within 30 days unless the employer files an appeal against such a Compliance Order to the Labour Court in terms of section 126 (3) of the Act.
The second recourse is to refer such dispute of non-compliance with section 35 (1), read with section 37(1) (e) of the Act, in writing to the Labour Commissioner for arbitration in section 38 (1) and (3) read with section 86 of the Labour Act.
However, in such case, the complainant or beneficiary must do so within one year after the dispute arising as contemplated in section 86(2)(b) of the Act.
Failure to comply with timelines results in the dispute having prescribed and the Labour Commissioner will have no jurisdiction to arbitrate the matter.
It is, therefore, cardinal that the complainant or beneficiary knows when the dispute arises and prescribes.
In the Luderitz Town Council v Shipepe (LAC 42/2012) case, the court stated a dispute arises when the parties begin to engage on the dispute and exhaust all internal attempts thereof, consequently, at that stage of non-resolution, that constitute the date the dispute arose.
With this piece, it is hoped that employers and employees will become fully aware of the obligation towards severance pay and claim the same on the grounds listed in section 35 (1) of the Labour Act.
To avoid forfeiting the benefit, it must be claimed within the prescribed timeframe of 12 months from termination of the contract of employment.
*The views expressed herein are not of my employer, but personal views of a scholar of employment law up to doctoral level.