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Long term service pay: the constant debate – July 2014

Long term service pay: the constant debate – July 2014

Payment of severance allowance (normally known as long term service pay) never ceases to be the subject of much confusion and constant debate. At first the debate centred around the question of what happens if the employer operates or participates in a pension or provident fund other than the Swaziland National Provident Fund (SNPF) or to any gratuity scheme; is the employer on retirement of an employee supposed to pay the retiring employee both the severance allowance as provided for in Section 34(1) of The Employment Act, 1980 as well the pension fund or gratuity as the case may be? Put differently, is the employee entitled to be paid both the severance allowance and the gratuity or pension?

When it was argued on the basis of Section 34(3) of The Employment Act that paying both amounts would amount to “double severance pay”, the Court of Appeal of Swaziland dismissed this submission. The Court reasoned that the one has got nothing to do with the other; the severance is statutorily imposed by Section 34(1) of The Employment Act and yet the gratuity is a contractual condition of employment (meaning it’s something that is agreed upon by the parties). See Appeal Case No. 1442/1993 in the matter between The Trustees of Swaziland Railway Gratuity Scheme vs. Swaziland Transport and Allied Workers Union.

However, the debate has since taken a new twist. When it was always assumed by many that employees are entitled to be paid severance allowance when reaching the age which is considered to be the normal retirement age within that particular industry in which they are employed as a terminal benefit, by virtue of Section 34(1) as read with Section 36(k) of The Employment Act, the Industrial Court has actually found that reaching the normal retirement age does not entitle an employee to be paid severance allowance. Interpreting Sections 34(1) as read with 36(k), the Industrial Court has concluded that when an employee retires from work, the employment contract thereby terminates automatically or by effluxion of time or the contract simply lapses. The Court stated that even though a retirement has the effect of terminating the employment contract, it is not a dismissal.

“When the legislature drafted Section 34(1) as read with 36(k) of The Employment Act, they had in mind a situation where the services of an employee are terminated by the employer prematurely, under the guise that the employee has retired. The legislature saw the need to protect employees against forced or premature retirement. In a case where the employee has been retired prematurely, severance allowance is payable-since the employer’s conduct amounts to an unfair dismissal though disguised as a retirement”, so reasoned the Court.

The Court noted further that Section 36 as read with 36(k) is somewhat confusing. “The statute creates an impression that when the services of an employee terminates on account of retirement that termination amounts to a dismissal by the employer….Obviously, there is a drafting error in Section 36 as read with 36(k) which must be urgently attended to by the legislature”, as stated by the Court.

In conclusion, the Court noted that it would not make sense to penalise an employer by ordering payment of severance allowance in terms of Section 34(1) in a case where there is absence of wrong doing on the part of the employer. “The Court reiterates therefore that Section 36 as read with 36(k) needs urgent amendment”, I quote. See Thring vs. Dunns Swaziland, Case No. 32/2013 (Industrial Court of Swaziland).

Published 25 July 2014

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