CR34 Interpretation – loan protection insurance


Interpretation – loan protection insurance – retrenchment cover – interpretation of term “retrenched” and date of retrenchment – exclusion where person had knowledge of retrenchment prior to commencement date or retrenched within three months of retrenchment date.

This case required an interpretation of the term “retrenched” and a determination of the date of retrenchment, with reference to labour law.

The complainant had a housing loan protection policy which included retrenchment cover. The policy stated that “The insurer will regard the insured person as retrenched if termination of employment complies with the legal termination of the insured person’s employment by reason of retrenchment, provided for in the Basic Conditions of Employment Act and the Labour Relations Act”. No retrenchment benefit would be paid to “any person who had knowledge of retrenchment prior to the commencement date, or who is retrenched within three months of the commencement date”.

The policy commencement date was 29 April 2003. On 23 June 2003 the employer gave the complainant a letter headed “Notice to terminate employment”. The letter indicated that the company was under financial strain and that certain staff positions needed to be reduced. The complainant was invited to make representations about her position, and told that options short of retrenchment would be discussed and considered. It was stated that, should no suitable vacancy or other alternative exist, her last working day would be 31 July 2003.

As it turned out, no alternative was found and her last working day was indeed 31 July 2003. The insurer declined the complainant’s claim for the retrenchment benefit on the basis that her retrenchment date was 23 June 2003 (the date of the letter), which fell within the three month period from commencement of the policy.

Establishing the date of retrenchment is a matter of fact and law; the date must be determined with reference to the relevant provisions of the Labour Relations Act.

A retrenchment is a type of dismissal, known as a dismissal for operational requirements; for reasons related to the needs of the business, employees’ positions have become redundant. Section 190 of the LRA fixes the date of dismissal as being the earlier of the date on which the contract is terminated, or the date on which the employee left the service of the employer.

When termination is on notice, the contract ends on the last day of the notice period, since this is the date on which the parties’ obligations under the contract cease.

Section 187(3) of the Labour Relations Act requires an employer contemplating retrenchment to issue a written notice inviting the other party to consult and to disclose in writing all relevant information. The proper procedure would be to go through a process of consultation and then, once a decision has been made to retrench, to give notice of dismissal.

The notice given in this case to the complainant on 23 June 2003 does not constitute a retrenchment. It is an attempt to afford prior notice of retrenchment to the employee, while at the same time giving notice that, if alternatives fail, the contract of employment will terminate on 31 July 2003. The fact that these stages were collapsed into one here does not alter the fact that the date of dismissal for operational requirements (retrenchment) was, in terms of section 190(1), 31 July 2003, since this was the date on which, alternatives having failed, the contract terminated, and it was the date on which the employee left the service of the employer.

We advised the insurer that, since the complainant had no knowledge of the retrenchment prior to the commencement date of the policy, and since the date of retrenchment fell outside of the three month period stipulated, no exclusion applies and she qualifies for the retrenchment benefit in terms of the policy. The insurer settled the claim.