In accordance with section 41 of the Basic Conditions of Employment Act 75 of 1997 (BCEA) an employee who is retrenched is entitled to receive severance pay unless they have unreasonably refused an offer of alternative employment.

The court, in discussing the purpose for which severance pay was established in accordance with the provisions of section 41 of the BCEA, confirmed that the purpose is to compensate employees for the loss of employment through no fault of their own and to act as a cushion from the loss of employment. The exception in section 41(4), which provides that no severance pay becomes payable where an alternative offer of employment is unreasonably refused, is to incentivise employers to ensure the employees obtain alternative employment. This notwithstanding, with reference to the Labour Appeal Court decision in Irvin & Johnson Ltd v Commission for Conciliation, Mediation & Arbitration and Others [2006] 27 ILJ 935 (LAC), the court in Khanya confirmed that the legislature did not intend, in its enactment of section 41(4), that a retrenched employee would be able to secure severance pay and a salary for the alternative employment.

In determining whether the former employees were indeed entitled to severance pay, the court found that the employer was not a passive actor in its former employees securing new employment, in that it assisted the new employer that offered its retrenched employees’ alternative employment.

The judgment confirmed that in circumstances where an employer played a part in securing alternative employment for retrenched employees with a new employer, and sought to be exempt from paying severance pay on this basis, it was not a requirement for it to have negotiated a special term with another employer to offer alternative employment to its retrenched employees.

The focus should be on whether there has not only been collaboration between the former and new employers, but also that the former employer has been swift in assisting the new employer with the information necessary to enable alternative offers of employment to be made to the retrenched employees. This enquiry will be fact dependant and each case will be assessed on its merits.

Accordingly, employers that seek to be exempt from the statutory obligation to pay severance pay on the basis that they have secured alternative employment for retrenched employees must be able to demonstrate, on the facts, that they acted swiftly and took an active role in efforts to ensure that their retrenched employees secured alternative employment.