CR303 Interpretation – Meaning of redundancy/retrenchment

Interpretation CR303

Meaning of redundancy/retrenchment


1. The complainant, a salesman for a truck company, lost his job when he did not meet his sales targets. He disputed his dismissal, and the dispute was settled. The settlement agreement stated that the employer would pay a severance package to him, consisting of some R10 000 notice pay and R30 000 severance pay.

2. The complainant had two credit life insurance policies covering his private vehicle loan, and after the settlement he submitted claims to the insurer for redundancy benefits. The insurer refused to pay the claims, stating that the reason for the termination of employment did not fall within the meaning of redundancy as defined in the policy.

3. Policy A defined redundancy to mean “termination of the life assured’s position by his/her employer as a result of the introduction of new technology or re-organisation of his/her employer’s enterprise”. “Redundancy” was also stated to include “Retrenchment”, and this was defined to mean “termination of the life assured’s position by his/her employer based on adverse conditions (including insolvency of the employer) or anticipation thereof or upon any other business decision of his/her employer resulting in staff reduction”.

4. Policy B provided for payment of a retrenchment benefit “in the event of the life assured suffering loss of employment resulting from the implementation of a staff reduction program by his employer”.

5. In our view the settlement agreement between the complainant and the employer constituted proof of the complainant’s retrenchment in terms of Policy A, in the sense that it in fact evidenced a termination of his employment on a business decision of the employer resulting in staff reduction.

6. We reasoned that the fact that the complainant had been dismissed for not meeting sales targets did not detract from the validity of his claim. In labour law a dismissal for not meeting sales targets is generally seen as a dismissal for incapacity and as such as a “no fault” dismissal, like dismissal for operational reasons, and as such is not necessarily a dismissal for misconduct. We pointed out that these categories are not water-tight. As stated by John Grogan in Dismissal (2002, p 195): “A distinction between incapacity dismissals and dismissals for operational requirements is in a sense artificial, because the latter subsume the former. When an employee is unable to perform properly, the ultimate reason for dismissal is that the employer cannot afford to retain the employee”. The ultimate reason for the dismissal is thus the operational requirements of the business.
7. We were alive to the fact that the word “program” in the definition in Policy B might imply that more than one person should have been dismissed, but this would not necessarily be so. Nevertheless it appeared from the claim form that six employees were dismissed at the same time as the complainant.

8. In our view it could well be argued that the requirements of Policy B had been met, in that the complainant suffered loss of employment resulting from the implementation of a staff reduction programme by his employer, whose operational requirements were such that it could no longer retain his services.

9. We put the above reasoning to the insurer. The insurer explained that the intention behind retrenchment cover was based on the principle of the “unforeseen” or “out of control”, adding that “if an employer institutes retrenchment for whatever reason and the insured played no part in whatever gave rise to such process being considered, then a claim would be considered as valid”. On the facts of this case the insurer nevertheless agreed to pay the claims.

March 2011