Retrenchment & Unemployment Benefit Claims

May 15, 2023

The purpose of this article is not to repeat the process that employers need to follow when employees are to be retrenched in terms of the provisions of section 189 – Dismissals based on operational requirements – of the Labour Relations Act (LRA) and the unemployment benefits that retrenched employees are entitled to claim, including statutory and/or contractual payments due to such employees.

The intention is to explain that retrenched employees may not necessarily qualify to claim unemployment benefits from the Unemployment Insurance Fund (UIF), as generally accepted.

Retrenchment is a form of dismissal due to no fault of the employee, it is a process whereby the employer reviews its business needs in order to increase profits or limit losses, which leads to reducing its employees.

Retrenchments can be forced or voluntary. Voluntary retrenchment is an alternative to forced retrenchment. It could be an outcome or an option as a result of consultations in terms of section 189(2) of the LRA. The offer of voluntary retrenchment can be made by either the employer or the employee at any time during the consultation process and before notice of forced termination is given to the employee. As soon as the other party accepts the offer of voluntary retrenchment, the terms can be adduced to writing and will be binding on both parties.

The “sweetener” offered by employers in voluntary retrenchment packages should be offered in addition to the statutory or contractual payments and can take many forms. For example, additional severance pay of more than one week’s pay for every completed year of service, and/or a once off gratuity, and/or any other benefits. Any additional payment or benefit will suffice if the parties have reached agreement thereon and if it is offered in addition to benefits and payments that the employee is legally entitled to.

It is common cause that forced retrenchment qualifies employees to claim unemployment benefits (UIF), as it is considered to be a no fault dismissal. However, voluntary retrenchment does not ordinarily qualify an employee to claim UIF, as it is considered to be a voluntary resignation.

Voluntary retrenchment means an employee agrees or volunteers to be retrenched and therefore waives any right to refer an unfair dismissal dispute to any external forum after termination of services. In turn, the employer offers the employee additional payments or benefits to what the employee is legally entitled.

Voluntary retrenchment is de facto a resignation, and therefore the employee will not qualify for UIF. It can only be claimed in instances of dismissal, forced retrenchment or if the contract has expired. If an employee chooses to conclude a mutual separation/voluntary retrenchment with an employer, the employee will not be entitled to claim unemployment insurance benefits in terms of the Unemployment Insurance Act (UIA).

A voluntary retrenchment agreement will be binding and enforceable if both parties enter into the agreement freely and voluntarily.

In the case of Gbenga-Oluwatoye v Reckitt Benckiser South Africa (Pty) Limited and Another (2016) 37 ILJ 2723 (CC) the Constitutional Court found that a clause in a voluntary separation package in which the parties relinquish their rights to approach the Commission for Conciliation, Mediation and Arbitration (CCMA) or the Labour Court regarding any dispute that arises from the work relationship is valid despite section 34 of the Constitution which grants every person the right to access to the courts. This is because the parties agreed voluntarily to finalise a matter in this way. In most cases, such an agreement will then serve as full and final settlement of any existing dispute between the parties and none of the parties may take the case forward at a later stage.

In the matter of Hodges v Urban Task Force Investments CC and Others (JR840/12) [2013] ZALCHB 295 (7 November 2013) the Labour Court, however, held that an employee cannot waive his/her rights to a fair dismissal in consideration for payments which are legally owed to the employee. For this reason, a voluntary retrenchment agreement will only be valid and enforceable if the employee is paid or granted a ‘sweetener’ in the form of an amount or benefits in addition to that to which he/she is legally entitled.

By signing the voluntary retrenchment agreement, the employee would ordinarily waive any right he or she may have to refer an unfair dismissal dispute or any other dispute emanating from the employment relationship to any external forum after termination of his/ her services. The agreement is therefore concluded in full and final settlement of all claims the parties may have against each other. The employee will, however, still have a contractual claim to the payments and/or benefits that were agreed upon in the voluntary retrenchment agreement itself.

If an employee chooses to conclude a mutual separation/retrenchment agreement with her/his/their employer, the employee will not be entitled to claim unemployment insurance benefits in terms of the UIA.

If an employee wishes to claim unemployment benefits from the UIF or any other insurer after termination of services, it is advisable for such employee to first consult with the applicable fund or insurer on the requirements for such claims. In all instances of termination of employment, the employer will ordinarily issue the employee with a UI-19 Form and certificate of service indicating that the employee’s services were terminated as a result of voluntary retrenchment, and this might affect an employee’s ability to claim any subsequent benefits.

The employer must give reasons for termination of employment by inserting the applicable code at the bottom of the UI-19 Form. Code 11 – retrenched/staff reduction and code 16 – voluntary severance package. The reason for this differentiation is that if the employer inserts Code 11, the employee will qualify for UIF benefits, as it is deemed to be a dismissal, and if it inserts Code 16, the employee will not qualify for UIF, as it is deemed to be a resignation.

It is important that employers complete the UI-19 Form honestly or truthfully and accurately by using the correct codes for termination of employment. In other words, voluntary severance packages or mutual separation agreements should not be dressed up as dismissals. In many instances, employees may request that the employer reflect the reason for termination of employment as a dismissal to enable them to claim unemployment insurance benefits. This, however, may be regarded as a fraud by the employer on the South African Revenue Service and may amount to a criminal offence in terms of the UIA.

So, ordinarily, an employee will not qualify for UIF if the termination of employment is due to a voluntary severance package or separation agreement. However, if it can be shown or verified that the employer has initiated the process for a voluntary severance package, and not the employee, the employee will qualify for UIF. In order to achieve this, the employer must complete and submit a UI-2.11 Form together with the UI-19 Form which must still indicate code 16 – voluntary severance package.

The content does not constitute legal advice, are not intended to be a substitute for legal advice and should not be relied upon as such. Kindly contact us on info@labourman.co.za or 021 556 1075 to speak to one of our consultants.

Author:

Wallace Albertyn

Wallace Albertyn is a Senior Associate and Legal Advisor at LabourMan Consultants.

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