What happens to your salary in South Africa when your boss dies?
Employees in South Africa are not always entitled to financial benefits if their employer dies.
According to Nasheetah Smith of Werksmans Attorneys, sole proprietors or employers who enter into employment contracts in their personal capacity are the single driving force behind their businesses.
Their death can leave employees with uncertainties about their rights and entitlements, as well as severance compensation.
Smith investigates whether employees are entitled to severance benefits following the death of their employer.
Retrenchment
Sections 189 and 189A of the Labour Relations Act No. 66 of 1995 (LRA) govern dismissals based on operational requirements.
However, Section 41(2) of the Basic Conditions of Employment Act (BCEA) says that employees who are fired for operational reasons are entitled to severance pay equal to at least one week’s pay for each year of employment with the employer.
Section 41(1) of the BCEA defines operational requirements as an employer’s economic, technological, structural, or similar demands.
Thus, severance pay is only due when an employee is fired for operational reasons.
Severance Due Upon Death
The death of an employer does not always result in the termination of an employment contract, which can still be lawful in certain circumstances under contract law.
“Furthermore, upon the death of the employer, the executor of the deceased’s estate assumes control over the deceased’s assets, including any employment-related matters,” said Smith.
“The exception to this principle is the case where the services are of a personal nature. In these instances, it is impossible to perform, and the contract is terminated on the death of the employer.”
“The death of the employer during the term of the contract terminates the contract because of the objective impossibility of performance.”
This problem arose in the case Meyers / Estate Late Dr Gordon [2022] before the Commission for Conciliation, Mediation, and Arbitration (CCMA), when an employee’s services were terminated following the death of a medical practitioner with whom she worked.
The employee filed a claim against the late employer’s estate for severance pay for ten years of service plus a thirteenth cheque.
“The CCMA held that an employee whose services were terminated by the death of their employer was not entitled to severance pay as the employment relationship terminated by operation of law and not for operational reasons,” said Smith.
“While severance pay is mandated for dismissals based on operational requirements under Sections 189 and 189A of the LRA, they do not apply in cases where the employment ends due to the death of the employer.”
“Employers who employ in their personal capacities should consider estate planning to ensure smooth transitions in the event of their passing, including addressing employment-related matters and potential obligations to employees.”
The employment contract should also specify how much compensation (if any) is payable if the employer dies.
Kind Regards
CPI Payroll Support Team