Retrenchment: calculation of severance pay


Case No. JS 614 / 06

Judgment Date 21 June 2007
Jurisdiction Labour Court, Johannesburg
Judge Molahlehi J
Subject Retrenchment: Severance Pay


The Employees sought a determination on whether the calculation of the severance pay by the Employer should have included the dealer bonuses of each of the Employees as provided for in a bonus scheme agreed to by the Employer.

The court held that as long as the Employer complied with the statutory minimum payments, there was no additional entitlement to other payments.

Summary of Facts - Retrenchment:

The 3 applicant Employees were retrenched by the Employer. They had all participated in a bonus scheme in terms of which bonuses were paid to them bi-annually.

When they were retrenched they were paid a severance package of 2 weeks’ salary for each completed year of service. The Employees claimed that their severance packages were calculated incorrectly as the bonuses were excluded from the quantum of remuneration on which the 2 weeks’ severance pay was calculated.

Summary of Judgement:

In exercising powers given to him in terms of section 35(5), the Minister published a schedule indicating payments to be included in an employee's remuneration for the purposes of calculating pay for severance pay in terms of section 41 of the Act.

In terms of this notice discretionary payments not related to an employee's hours of work or performance do not form part of the remuneration for the purpose of calculating severance pay.

The court held that where an employer paid more than what section 41 of the Act required, a section 35(5) calculation would not apply.

In this case, the Employees severance packages exceeded what they would have received had they been paid the statutory minimum calculated to include the bonuses.

As the Employees received more than what was provided for in section 41 of the Act and in the absence of an agreement to use the formula provided for in section 35, the court held that the Employer had complied with the requirement of the Act and that the Employees were not entitled to payment of their bonuses.