Payment of severance pay

This piece communicates payment of severance pay that accrues to employees who are unfairly dismissed from employment; who die while in employment; resign or retire on reaching the age of 65 years as provided for in section 35 of the Labour Act.Generally, severance pay applies in retrenchment instances premised on collective terminations or dismissals at the behest of the employer based on limited grounds of operational requirements. These include: Reorganisation, transfer of the business and the discontinuation and reduction of the business for economic or technological reasons.The Labour Act has widened the grounds for payment of severance pay to various categories of employees, beyond the limited confines of retrenchments. The Act generously provides for severance payment on the grounds of: Employees who have completed 12 months’ continuous service with such an employer under the following grounds: Where the employee is dismissed (for unfair reasons), dies while in employment, resigns or retires after reaching the age of 65 years.The word ‘or’ is a conjunction used to link two alternatives which are either that the employee dies or resigns from his/her employment, or retires on reaching the age of 65 years, albeit normal retirement generally being at 60 years.The word ‘must’ used in the Act does not afford employers any discretion. It is mandatory and peremptory and not permissive or directory, as pointed out by the Supreme Court in the case of William Torbitt and others v International University of Management.The requirement to pay severance applies in the same manner as payments of accrued leave days and other termination benefits.Consistent with the above, in Gibeon Village Council v Uaaka [2021], an arbitrator issued an award in favour of the resigned employee who claimed severance payment at resignation. In the circumstances, the employer refused to pay the benefit and subsequently appealed the award of the arbitrator to the Labour Court. In the matter, the court held that severance payment in resignation instances is governed by the Labour Act. Therefore, in the normal run of things, the respondent (resigned employee) is entitled to severance pay. Accordingly, the court ordered payment with interest accruing at a rate of 20% from the date of the award.Disqualifying criteriaSection 35 (2) of the Act, on the other hand, outlines the disqualifying criteria for payment, which includes when the employee is dismissed fairly on the grounds of misconduct or poor work performance; when the employee refuses to be reinstated after an unfair dismissal, and if the employee unreasonably refuses to accept employment on terms and conditions not less favourable than those that applied to him or her immediately before termination of employment.This provision was cemented in Schmitz Service CC v Titus & Others (NLLP, 2014) where it was held that payment of severance pay does not apply to each and every employee who separates from his or her employment, particularly under s.35 (2) of the Act.Termination on account of resignation contemplated in s.30 of the Labour Act entitles the resigned employee to severance payment, provided that the required notice is served and the employee has completed 12 months continuous service with the employer. Twelve months’ “continuous service” with the same employer is a prerequisite for the accrual of the benefit. Continuous service for this purpose means any period of employment that an employee worked for an employer and includes any period of leave of absence granted, any period of suspension from the date of dismissal to the date of reinstatement if the employee is reinstated, and the period of a strike or lockout that complies with the Labour Act.Formula for severance paySection 35 (3) of the Act tabulates the accrual formula of severance pay. In that, it is an amount equal to at least one week’s remuneration for each year of continuous service completed with the employer.The formula for calculating severance pay is provided for in s.10 (3) of the Act, by dividing the monthly rate of the employee’s remuneration by 4.333 to arrive at weekly rate.It is important to know that the amount payable as severance pay does not take away the employee’s or beneficiary’s right to any other amount that the employer is obliged to pay him or her. Therefore, this payment does not affect the right to any other amount the employee or beneficiary may be entitled to receive in terms of any law, i.e contractual separation gratuity, pension fund, leave pay and notice pay.Further, accrued severance pay to an employee is not affected by termination of his/her contract by virtue of death of that employee.The employer is not absolved from his obligation to pay severance pay to the employee’s surviving spouse, the beneficiaries or his estate.DisputesIn an event of a dispute over the payment of severance pay, for instance when the employer refuses to pay this benefit, the aggrieved complainant or beneficiary has recourse to two options: The first is to the labour inspectorate under the ministry of labour, industrial relations and job creation. In terms of s.126 of the Act, labour inspectors have power to issue compliance orders to employers who fail to comply with any provision of the Labour Act. This is the quickest intervention available to secure payment within 30 days, unless the employer files an appeal against such a compliance order to the Labour Court.The second recourse is to refer such dispute of non-compliance, in writing, to the Labour Commissioner for arbitration. However, in such case, the complainant or beneficiary must do so within one year of the dispute arising. Failure to comply with timelines, the Labour Commissioner will have no jurisdiction to arbitrate the matter. It is therefore cardinal that the complainant or beneficiary knows when the dispute arises.In Luderitz town council v Shipepe (LAC 42/2012), the court stated that a dispute arises when the parties begin to engage on the dispute and exhaust all internal attempts thereof. Consequently, at that stage of non-resolution, that constitutes the date the dispute arose.With this piece, it is hoped that employers and employees will become fully aware of the obligation to pay severance pay and claim the same on the grounds listed in the Labour Act. To avoid forfeiting the benefit, it must be claimed within the prescribed timeframe of 12 months from termination of the contract of employment.*The views expressed herein are not of my employer, but the personal views of a scholar of employment law up to doctoral level.

Payment of severance pay

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Namibian Sun 2025-11-06

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Payment of severance pay

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Namibian Sun 2025-11-06

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