Employment law update – Payment for accrued annual leave on termination of employment

April 1st, 2014
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By Talita Laubscher and Monique Jefferson

In Ludick v Rural Maintenance (Pty) Ltd [2014] 2 BLLR 178 (LC) the Labour Court considered the accumulation and forfeiture of statutory annual leave granted in terms of the Basic Conditions of Employment Act 75 of 1997 (BCEA) with reference to two conflicting decisions on this issue.

In the Ludick case, the applicant employee had worked for the respondent for 27 months and had not taken any annual leave during this period. The applicant therefore claimed to be paid in respect of all the annual leave that had allegedly accrued to him over the two annual leave cycles on the termination of his employment. The respondent argued that the applicant had no such entitlement as, in terms of its leave policy and the applicant’s employment contract, all his annual leave had been forfeited because he had failed to take it.

Van Niekerk J considered the provisions of the BCEA that require an employee, on termination of employment, to be paid in respect of annual leave accrued but not granted before the date of termination, together with a pro rata amount for leave accrued in the current annual leave cycle. The applicant argued that he was entitled to accumulate an unlimited amount of annual leave as the BCEA is silent on the issue.

The applicant also argued that s 40(b) of the BCEA provides that an employee is entitled to be paid for ‘any period of annual leave … that the employee has not taken’. He alleged that the provisions of the employment contract providing for the forfeiture of annual leave were unenforceable as they were less favourable than what is provided in the BCEA.

The applicant further argued that, at the very least, he should be entitled to payment in respect of annual leave accrued during the second annual leave cycle as, in terms of the BCEA, an employer must grant annual leave not later than six months after the end of the annual leave cycle in which it accrued. The respondent argued that the applicant was not entitled to any accrued annual leave pay as such leave due to the applicant had been forfeited in accordance with the terms of his employment contract.

The applicant referred to the case of Jardine v Tongaat-Hulett Sugar Ltd [2003] 7 BLLR 717 (LC) in which it was found that statutory annual leave not taken within six months after the end of the annual leave cycle in which it accrued is not automatically forfeited nor is any right to accrued annual leave pay ever forfeited. Van Niekerk J considered this view with reference to a different approach that was followed in Jooste v Kohler Packaging Ltd [2003] 12 BLLR 1251 (LC) in which it was held that an employee could only be paid on termination of employment in respect of statutory annual leave that had accrued in the annual leave cycle immediately preceding that during which the termination took place and all other annual leave is forfeited.

Van Niekerk J found that the purpose of the BCEA is to ensure that employees take the annual leave that they are entitled to and this purpose would be circumvented if employees were permitted to accumulate annual leave indefinitely and wait to claim payment on termination. He found that where employees are frustrated from taking annual leave they should then invoke the enforcement provisions of the BCEA.

Van Niekerk J found that there was no reason to depart from the decision in the Jooste case where claims for accrued annual leave pay were limited to annual leave not taken in the current annual leave cycle and the immediately prior annual leave cycle. Van Niekerk J stated that, in terms of the BCEA, an employer is obliged to grant employees leave before the expiry of the six-month period following the annual leave cycle in which it accrued.

This does not mean that the employee has the right to take leave at any time in that period. Once annual leave has accrued the timing of leave should be the subject of agreement between the parties. In the absence of agreement, the employer may decide the timing of annual leave and provisions in an employment contract entitling the employer to determine the timing of annual leave were therefore enforceable.

Van Niekerk J found, however, that the forfeiture of annual leave was a separate issue to the timing of the annual leave. In this regard, Van Niekerk J held that an employee does not forfeit annual leave or the right to be paid in lieu of annual leave on termination of employment if the annual leave is not taken within the six-month period following the annual leave cycle in which the leave accrued. But this applies only to statutory annual leave in the current annual leave cycle and the immediately preceding annual leave cycle.

Practitioners should note that the balance of authority from the Labour Court now, inter alia, suggests that:

  • Untaken statutory annual leave from the current annual leave cycle and the immediately preceding leave cycle is not forfeited and must be paid out on termination.
  • Statutory annual leave from prior leave cycles is forfeited and an employee has no right to be paid in respect of such annual leave, unless of course the employee’s employment contract or the employer’s leave policy permits such accumulation and payment.
  • Annual leave must be taken by agreement between the employer and the employee and failing agreement, the employer may determine the time when the employee must take leave.
  • If an employee is frustrated from taking leave, he or she must use the enforcement mechanisms contained in the BCEA. Employees earning below the income threshold prescribed in the BCEA (currently R 193 805) may accordingly seek enforcement through the labour inspectorate, and employees earning above this threshold may seek specific performance through the Labour Court.
  • Leave granted in addition to an employee’s BCEA/statutory entitlement is not subject to the limitations prescribed by the BCEA and may be subject to whatever conditions are determined by the employer. Such additional leave could therefore be accumulated or forfeited as determined by the employer, and the employer may regulate payment in respect of additional annual leave in the manner it deems appropriate.

Talita Laubscher BIur LLB (UFS) LLM (Emory University USA) is an attorney at Bowman Gilfillan in Johannesburg.

Monique Jefferson BA (Wits) LLB (Rhodes) is an attorney at Bowman Gilfillan in Johannesburg.

This article was first published in De Rebus in 2014 (April) DR 50.

 

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