Stakes are high when employment is terminated.

By Ivan Israelstam

You have to go far back in South African history to find a time when as many employees were losing their jobs as they are right now. 

While retrenchments are at an historical high, mutually agreed terminations are also on the increase. The reasons that such a package might be offered by the employer are many and varied and include, among others, the following:

  • The employer believes that the employee and another person in the organisation are incompatible and that a mutually agreed separation would be best.

  • The employee is suspected of misconduct but the employer cannot prove it.

  • The employee has committed misconduct or has performed badly but the employer does not want the "hassle" of a disciplinary hearing.

  • The employer's operational needs have changed.

  • The employee is so incapacitated as to be unable to do his/her job.

  • The boss wants to create a vacancy for a family member.

Where a separation package is accepted by the employee, the parties might agree that the amount of the payment will be calculated in the same or similar way to that used for calculating a retrenchment package in terms of section 41 of the Basic Conditions of Employment Act (BCEA). 

That is, the calculation might be based on the number of years of service of the employee.

However, this does not mean that the employee has been retrenched in terms of section 189 of the Labour Relations Act (LRA).

In terms of that section, if the employer has operational requirements that might necessitate terminations, the employer is required to consult with the employees who may be affected or with their representatives. 

Section 189 allows the employer to retrench employees if there is a good enough basis for this and if the consultation process has been conducted properly. 

In a section 189 retrenchment the employer does not have to get the agreement of the employees or employee representatives to carry out the retrenchment. 

Instead, it need only comply with the provisions of the LRA. 

On the other hand, where there is a mutually agreed separation this, by definition, involves an agreement. 

A section 189 retrenchment is concluded by a letter from the employer giving the employees notice of termination of employment. 

However, a termination by mutual consent is concluded by a legal agreement.

Employers are warned not to confuse these types of termination. 

A termination concluded by a genuine and legally binding contract is not classed as a dismissal in the LRA, whereas a section 189 retrenchment is a type of dismissal and may in certain cases be viewed as an unfair dismissal.

In a case recently decided by the Labour Appeal Court (Absa Investment Management Services (Pty) Ltd v Crowhurst), Ms Crowhurst's employment was terminated. 

She went to Labour Court claiming unfair retrenchment. 

Absa lost the case and, on appeal, claimed that the employee's employment had been terminated via mutual agreement. 

Ms Crowhurst claimed that she had been led to believe that her position had become redundant and that she would need to be retrenched as there were no other positions available for her. 

However, according to Ms Crowhurst, she discovered that there were several vacancies that would have suited her qualifications.

The employer's version was that Ms Crowhurst had been offered two alternatives to retrenchment. 

Confronted with these two conflicting versions the court had to look closely at the document that implemented the termination of Ms Crowhurst's employment. 

It stated that, due to the redundancy of her position, her employment was being terminated. 

The letter neither bore content that indicated a mutually agreed termination nor referred to the alternatives to retrenchment that the employer claimed had been offered to her. 

The court decided that Ms Crowhurst had in fact been retrenched and that this dismissal was unfair. The employer was therefore required to pay Ms Crowhurst six months' remuneration in compensation and also to pay her legal costs.

As the stakes are high when employment is terminated, employers are warned:

  • To formulate their mutual termination documents to make it clear that the termination is not a dismissal.

  • To record their retrenchment consultations so as to make sure that they are able to prove to the courts what really was and was not said.

  • To ensure that termination strategies and processes are managed by those properly versed in labour law.

Ivan Israelstam is chief executive of Labour Law Management Consulting. He can be contacted on 011 888-7944 or

  • Our Appreciation to Ivan and The Star newspaper for permission to publish this article.




We receive a large number of inquiries on our e-mail facility regarding the payment of bonuses.

Generally, the most common questions are "what does the law say about bonuses?" and "can we hold back the payment of bonuses until February?"  and "can we pay off bonus in December and half in January?"  and so on.

Firstly, at the outset, it must be understood that Labour Law is silent on the question of bonuses.

 This means that the payment or non-payment of bonuses is a matter entirely for the employer to decide, and to negotiate with employees.  If an employer who presently does not pay bonuses of any sort wishes to continue on that route he can do so, without fear of being accused of unfair labour practice.

We will deal with the three common types of bonus, namely the Christmas bonus or 13th cheque as it is known, the performance bonus and  the production bonus.

The 13th cheque or Christmas bonus.

This bonus is normally classed as a gratuity - in other words, a payment of gratitude by the employer to the employee in recognition of a job well done, or if you like, going the extra mile.

 However, over the years most employees have come to expect the payment of the 13th Cheque as a right or entitlement, or as a condition of employment.  This is evidenced by the fact that at  job application interviews most applicants will ask "do you pay a 13th Cheque?" 

In other words, they expect to be paid a 13th cheque irrespective of whether the job is well done or irrespective of whether they travel the extra mile. They want the payment of a 13th cheque to be incorporated as a condition of employment. It is therefore up to the employer to get things back onto a proper footing.  Many employers these days have done away with the payment of a 13th cheque and have incorporated the amount into the employees basic salary.

There may come a time, when after a bad trading year, an employer is unable to pay a 13th cheque despite having paid consistently for the last ten years. 

It is highly necessary that the employees be informed at least six months in advance that the 13th cheque will not be paid this year.  Some employers may argue that they don't know six months in advance that they will be unable to pay the bonus, but surely by midyear they must have some idea of what the profits will be like at the end of the year. 

To suddenly advise employees as late as November or early December that no bonuses will be paid this year could land you up at the CCMA on a charge of unfair labour practice with respect to the provision of benefits. 

The employer must bear in mind that many employees count the amount of the bonus into their normal household budget during the holiday season, and they depend on the bonus to pay for the annual holiday, Christmas presents and so on.  To suddenly inform them at the last minute that there will be no bonus this year is indeed unfair, and should be avoided. 

Employers must examine their policy regarding the payment of the 13th cheque and should revise this so that this type of bonus is paid only to those employees who genuinely do the job well and go the extra mile. 

The performance bonus. 

A performance bonus is normally paid for good performance, and should be based as a percentage of the employees salary or wages.  A performance bonus can also be paid as a lump sum to a department, and split up in equal amounts to each employee in that department. 

This would apply in the situation where all employees in a particular department are collectively responsible for above-average performance.  The performance would be measured against laid down company standards, but the bonus would not be paid only for the occasional work done which exceeds company standards, but for consistent work exceeding company standards. 

This means that line management and the shop foremen and even supervisors have to become much more closely involved with the monitoring of performance on the shop floor and careful records must be kept. 

In a situation where the results achieved by a department depend entirely on the collective effort of all employees in the department, the amount of the bonus could be calculated on the basis of a percentage of profits achieved over and above what was budgeted for, or as a percentage of the total profits generated by the department and so on.


Whatever the case, the method of calculation must be fair and equitable. 

The production bonus.  

The production bonus is based, not on performance measured against company standards, but rather on production measured against targets.  Measurement is also based on quality of production. 

In other words if the company has set a target for one particular employee or, for that matter, for a particular department to produce 100 widgets per hour, and the employee or department consistently produce 130 widgets per hour, then a production bonus would be justified. 

Similarly, if the company rule is that a rejection rate of 5 percent is acceptable, but the department consistently achieves a rejection rate of only 1%, then a production bonus would be in order. 

It must be admitted that the additional production and the reduced rejection rate can only mean good management within the department, and it can only mean a genuine interest in the job by the employees, thus generating additional profits for the shareholders.


The payment of bonuses

In the case of the employer who presently does not pay bonuses of any sort, it is entirely up to the employer to decide whether he wishes to pay bonuses or not.

However in the case of the employer who presently pays bonuses the situation is slightly different because those employees have now come to expect the payment of the bonus as a right or entitlement. 

Therefore, those employers who now wish to change the status quo regarding payment of bonuses, either by paying less, or by paying at the different time of the year than what has been the case in the past, or by splitting what was an annual bonus into two separate payments, will have to consult with the employees, explain the problems, and try to get them to accept the new system. 

Employers must remember that such changes do constitute a change to the employees terms and conditions of employment, and this cannot be done unilaterally - it must be negotiated with the employees. 

The bottom line is that should the employees refuse to accept the change, but the employer has good,  sound and reasonable commercial rationale for making the change, then he can go ahead and implement it after negotiations, even if all employees do not agree to it. This is not to say that a few disgruntled employees will not proceed with a claim  of unfair labour practice, but that is a problem that will not prove to be insurmountable. 

In summary, be fair, be equitable and advise your employees in good time if there is to be a problem with the payment of bonuses or if there is to be a departure from the established payment procedures.