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Termination of Employment Contracts in South Africa

1. Grounds for Termination

The grounds upon which an employer can fairly dismiss an employee are:

  • misconduct;
  • incapacity (which can be in the form of ill health incapacity or poor performance); or
  • the operational requirements of the employer (i.e., redundancy, which is dealt with below in more detail).

Dismissal may be summary where this is warranted (e.g., in cases of serious misconduct) but otherwise the employee must be given notice. Employers may pay their employees in lieu of notice.

An employee whose employment is fairly terminated for misconduct or poor performance is not entitled to any separation or severance pay.

2. Collective Dismissals

A retrenchment is identified as large or small-scale depending on the number of employees to be retrenched with reference both to the current retrenchment, and to any employees retrenched in the preceding twelve months. The threshold is roughly 10% of the workforce.

The employer must start consulting when it contemplates retrenching. The Labour Court has stated this means when retrenchments are reasonably foreseeable. The discussion should include ways to avoid retrenchments or keep the number of retrenchments as low as possible, opportunities to change the timing of retrenchments in order to mitigate the hardships caused to employees who are retrenched, how to select the employees to be retrenched, and what is to be paid to retrenched employees (severance pay).

As part of its duty to avoid retrenchment, wherever possible, the employer must explore alternatives to retrenchment.

There are statutory rights to severance pay for retrenched employees. An employer must pay an employee dismissed for operational requirements severance pay equal to at least one week’s remuneration for each completed year of continued service with that employer.

3. Individual Dismissals

Employers do not enjoy the freedom to terminate at will in South Africa. The LRA requires that the termination of employment must be fair (which requires the employer to prove that there is a fair reason for the termination and to follow a fair termination procedure).

Misconduct. Dismissal for misconduct is expected to be a measure of last resort, reserved for serious misconduct or for repeated misconduct where the employee has not heeded corrective disciplinary action such as warnings. The fundamental question to be asked (in deciding whether to dismiss) is whether the misconduct committed by the employee renders the continuation of the employment relationship intolerable.

Poor performance. When the employee was aware or could reasonably have been expected to be aware of the required performance standard, and the employee was given a fair opportunity to meet the required performance standard but failed to do so, dismissal for performance is permissible. Dismissal must be the appropriate sanction for not meeting the required performance standard in the particular circumstances, and where the failure by an employee to meet a performance standard is for reasons beyond the employee’s control, dismissal would not be justified.

Automatically unfair dismissals. An employee will be regarded as having been automatically unfairly dismissed where the reason for the dismissal is one of a limited list of reasons that are regarded as particularly unfair grounds for dismissal, and they include where the reason for the dismissal is: that the employee participated in protected industrial action; a refusal by employees to accept a demand in respect of any matter of mutual interest between them and their employer; the employee exercised rights conferred by the LRA; the employee’s pregnancy; unfair discrimination against an employee, a transfer of a business as a going concern; or victimization of a whistleblower.

a. Is severance pay required?

An employee whose employment is fairly terminated for misconduct or poor performance is not entitled to any separation or severance pay. Dismissal for misconduct will often be summary (i.e., without notice) while dismissal for poor performance will be on notice. On termination in either event, the employer only has to pay accrued entitlements to remuneration for time already worked and accrued annual leave pay.

If, however, the employee is dismissed due to the employer’s operational requirements (e.g., where the employee’s position has become redundant due to lack of work or the introduction of new technology), the employee must be paid severance pay of at least the equivalent of one week’s remuneration for each completed year of continuous service with the employer, unless the employee unreasonably refuses an offer of alternative employment, in which case no severance pay is payable.

4. Separation Agreements

a. Is a Separation Agreement required or considered best practice?

Separation agreements are not required. They may be considered best practice in certain cases, where an employer and employee wish to part ways amicably, or where an employer wishes to remove the risk of an employee referring a dispute against it in relation to that employee’s employment.

b. What are the standard provisions of a Separation Agreement?

Under a separation or settlement agreement with a departing employee, the employer may agree to compensate the employee with additional payments or benefits in exchange for a full and final settlement of any claims that the employee may have against the employer. Typically, the agreement will include a waiver of claims by the employee, confidentiality obligations and a recordal that the employee enters into the agreement freely and voluntarily.

c. Does the age of the employee make a difference?

As long as the employee is not unfairly discriminated against due to his/her age, age does not make a difference.

d. Are there additional provisions to consider?

Other provisions to consider including in separation agreements are handover arrangements, the relinquishment of other positions where applicable (e.g. company directorships, trusteeships, etc.), the return of company assets, no disparagement provisions and post-termination restrictive covenants.

5. Remedies for employee seeking to challenge wrongful termination

Arbitrators and courts must order reinstatement or re-employment of an unfairly dismissed employee, unless the dismissed employee does not wish to return to the employer, the arbitrator or court is satisfied that the resumption of the employment relationship would be intolerable or impracticable or where the dismissal was only procedurally unfair. If reinstatement is ordered, the employer may be required to pay the employee’s wages from the date of dismissal to the date of the reinstatement order (i.e., back pay), which can be a period of years depending on the court process. If reinstatement or re-employment is not awarded, unfairly dismissed employees may be granted financial compensation.

For more information, please contact L&E Global.
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