Severance pay – Is it payment for long service or excellent service?

Our Law, the Labour Code Order, No24 of 1992, makes provision for what is referred to as severance pay. This is money paid to an employee, when the  employment relations between him and the employer gets severed, cut or ends for any reason other than dismissal for misconduct. According to S79 of the Code, an employer is required to pay two weeks’ wages for every completed year, where an employee has served a minimum of one year of continuous service with the same employer. Even where the business has been transferred to another owner, as a going concern and an agreement has been reached to take over employees, the issue of their years of service, becomes one of the key issues of the transfer. The most important element of this service is the continuity part, there must not be any break in the continuity of service for the employee to be entitled to the benefit.

In some jurisdictions, severance is only paid where employees are either laid off or retrenched, for whatever reason. Any termination outside of retrenchment does not call for payment of severance. Since it is made mandatory in the law, it therefore means it is a legal obligation that employers have to comply with, or face the wrath of the law. What exactly is the purpose of paying severance then? In most countries, especially the least developed countries similar to ours, the state is unable to take responsibility for taking care of its citizens who are destitute or for whatever reasons, are without a job. We do not have social security, welfare protection. Responsibilities that otherwise would have been for the state, have now been shifted to employers meaning taking responsibilities like paying for medical health insurance, maternity(and paternity)benefits and severance pay .

Ordinarily, one would assume that severance is intended to appreciate the service that the employee has offered to the employer for all the years worked. It is also intended to acknowledge and appreciate the contribution that the employee has made over the years, towards the growth of the business. It is also to take cognisance of the fact that beyond this job ending, the employee might be out of work for some time, or forever, so the money is meant to provide such an employee with capital to start a business, or serve as an income until they land their next job. So, if these are some of the noble justifications behind payment of severance, why then is an employee who is dismissed for misconduct denied the enjoyment of the fruits of his labour? An employee who has worked for 9 years without any issues of conduct who has been a good, clean employee for those many years, is befallen by the misfortune of having miscalculated a transaction, and he goes and enters into an agreement with a scammer, unfortunately, the scammer runs away with the company’s money, hundreds and thousands of Maloti, the employee is then charged with gross negligence and is dismissed, rightfully so. Should this employee forfeit his 9 years of service and contribution to the employer’s business due to an unfortunate poor decision of not more than 10minutes, has the employer forgotten about the dedication and contribution the particular employee has provided and would have continued to do so if not for the unfortunate incident?

The Labour Code, does not provide for reservations on this, it simply states that an employee who is found guilty and is dismissed for misconduct, shall not be entitled to severance pay. Should the law be looking perhaps at pro-rating the severance pay, and only paying the employee up to the last year that the misconduct happened? In that way acknowledging years of excellent service while also punishing the bad one? Or perhaps, the law needs to outline the nature of misconducts that would lead to forfeiture of severance pay? Serious misconduct like theft, sexual harassment, violence, misconducts that go to the root of the basis of the employment relationship, which is trust. If the misconduct is one which amounts to a breach of trust, which is the foundation of the employment relationship, then yes, the employee can forfeit, but negligence, sleeping on duty, horseplay and other like offences which in some workplaces are dismissible offense, should not lead to forfeiture of severance pay.

Contributory pension schemes and provident funds have followed this example. They also have regulations that prohibit payment of the employer’s contribution where an employee is dismissed for misconduct, maybe these regulations should also be revised and clauses indicating the types of offences that do not entitle an employee to the employer’s contribution must be outlined too. Two weeks ago, in this column, we discussed the predicament that employers are faced with of employees who resign at the behest of a disciplinary action. This is the very reason why most of them choose to follow this route, they want to protect their severance and/ or other terminal benefits. As we go through the revision of the Labour Laws, social partners involved are implored upon to embark on research to find out how other jurisdictions are dealing with this issues, learn from good practice and ultimately come up with laws that are beneficial for both employers and employees.

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