Introduction
The question of whether an employee should be paid for outstanding annual leave not taken when resigning or when employment is terminated for another reason remains debatable.
Statutory Framework: The Basic Conditions of Employment Act (BCEA)
Section 40(b) of the Basic Conditions of Employment Act (BCEA) provides that, on termination of employment, an employer must pay an employee remuneration calculated in accordance with section 21(1) for any period of annual leave due in terms of section 20(2) that the employee has not taken.
The phrase “any period of annual leave” appears to suggest that payment must be made for all leave not taken, regardless of when it was accrued (whether in the previous year or earlier).
This interpretation is supported by section 21(1), which provides that remuneration for annual leave must be paid at the rate earned at the time the leave was accrued. In effect, this means that if leave was accrued several years earlier, it should be calculated at the rate of remuneration applicable at the time of accrual.
Judicial Interpretation: Jooste v Kohler Packaging Ltd
In Jooste v Kohler Packaging Ltd (2003) 12 BLLR 1251 (LC), the Labour Court adopted a different approach.
In this case, the employee had accrued 141 days of annual leave at the time of resignation. The employer paid only 50 days’ leave, relying on its leave policy, which limited the accumulation of leave to 50 days.
The Court considered whether the BCEA obliges an employer to pay for leave accrued during leave cycles preceding the cycle immediately before termination.
The Court’s Reasoning
The Court held that section 40(b) of the BCEA was not intended to deal with situations where an employer failed to grant leave during earlier leave cycles. The BCEA obliges employers to grant the statutory minimum leave during each leave cycle, and the legislation assumes that leave will be taken regularly.
The Court further stated that any potential unjust enrichment of the employer was irrelevant. Employees, according to the Court, should insist on exercising their rights to annual leave during each leave cycle.
Argument on Forfeiture of Leave
The applicant’s attorney argued that the BCEA contains no provision for the forfeiture of annual leave and that the employee was therefore entitled to payment for all outstanding leave.
Acting Judge Franklin rejected this argument, holding that the BCEA contemplates payment only for leave accrued in the leave cycle immediately preceding termination, together with pro-rata leave for the cycle in which termination occurs.
Purpose of the BCEA
The Court emphasized that the primary purpose of the BCEA is to ensure that employees take annual leave, and that employers may not refuse this entitlement. Allowing payment on termination for leave accumulated over multiple prior cycles would undermine the Act and render section 20(2) meaningless.
Supporting Authority: Newton v Wilburg Ellis Co (Pty) Ltd
Reference was made to Newton v Wilburg Ellis Co (Pty) Ltd (Case No. 9563/94, 25 September 1996), where Judge Kuhn noted that the Act regulates employment conditions and obliges employers to grant annual leave after each 12-month leave cycle. Employers are not entitled to pay employees in lieu of leave during employment.
Judge Kuhn further held that, on termination, an employee is entitled only to:
- Remuneration for leave accrued in the leave cycle immediately prior to termination; and
- Pro-rata leave for the portion of the final leave cycle worked.
Outcome of the Case
The Court concluded that it was the employee’s responsibility to ensure that annual leave was taken. If operational requirements prevented this, the employee should have obtained a written undertaking from the employer regarding the future treatment of the outstanding leave – either permission to take leave at a later date or an agreement to be paid out.
The applicant’s claim for payment of the additional 91 days of leave was dismissed, resulting in a financial loss of just over R70,000.
Practical Lessons for Employers
Employers should implement a clear Annual Leave Usage Policy, particularly where leave accumulation is permitted. There is a duty on employers to monitor leave usage carefully and ensure that employees take leave in accordance with the policy.
Policies that are not actively managed or enforced serve little purpose. If employers are unwilling to invest the necessary effort to implement their own policies, those policies may as well not exist.
