Due for annual leave? Don’t even think about storing it up for a rainy day. A new judgment from the Labour Court stresses that taking a break every year is one of an employee’s fundamental rights.
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PexelsWhile employers who want employees not to take leave are in breach of the law, there’s an even more serious consideration for staffers: the Labour Court reminds all employees that leave not taken within six months of the relevant leave cycle will be lost. Gone. No later payout. Nothing.
The judge stressed that while an older court decision questions whether leave not taken must be forfeited and suggests that it could be accumulated instead, this view has now been convincingly rejected. Leave couldn’t be used by employees like ‘some kind of piggybank’ to store up a lucrative cash pay-out for when they quit their job, he said.
The story concerns top-rate car salesperson, Ivan Hartley. Someone so good that he was headhunted by the Land Rover franchise in Umhlanga to take up the role of dealer principal. Though he started the new job on 1 April 2013, what happened five years later was no joke and led to Hartley taking his employers to court.
When Hartley was approached by Sean Duminy, principal member of the franchise holder, SMD Trading Group, to join the Land Rover dealership, he had one major condition: the salary and conditions of service he’d enjoyed at the previous job should be unchanged. Duminy agreed, and Hartley began what would be just over five years work at SMD.
During 2018, SMD ran into financial difficulties, but towards the end of that year another company seemed interested in taking it over. It was a possibility that might have solved most of the financial problems and, in January 2019, the four top SMD staff: Duminy, Hartley, Sean Findlay (dealer principal of SMD’s other franchises) and Sadek Goolam (general manager), met to discuss the possible acquisition.
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Salary cuts discussed
More specificially, the four considered the fact that, for the sale to be made more attractive, SMD would need a drastic reduction in its expenses and that this would entail a cut in the salaries of all four present at the meeting.
Hartley’s ordinary monthly salary at this stage was R228,500 and that’s what he was paid at the end of January, the first pay cheque after the meeting. At the end of February, however, he found his salary had been reduced by some 67%. With R153,500 trimmed from his previous salary, he was now paid R75,000. While the other three also had cuts, these were nothing like the reductions in Hartley’s case.
Duminy’s salary was reduced from R405,500 to R365,000 (a reduction of R40,500 or about 10%), Goolam’s went from R100,000 to R75,000 (a cut of R25,000 or 25% ) and Findlay’s was trimmed from R155,000 to R120,000 (R35,000 or 22.5% less than before).
Resignation after stunning salary slash
Stunned by his salary slash, Hartley went to see Duminy. He later gave evidence that he had no satisfaction in that meeting with Duminy. He resigned by email at the end of March 2019 because of this substantial cut to his earnings, and he left the business at the end of April.
In 2021, unable to make headway in his several claims against SMD, Hartley turned to the Labour Court where the matter was heard by acting judge, Sean Snyman. Hartley’s case was that under the Basic Conditions of Employment Act (the BCEA), the substantial reduction in his salary – made without his agreement or even consultation – amounted to breach of contract.
Leave pay dispute
He claimed that his contract had been breached in another way as well: the company wasn’t paying him out for the leave he had accumulated at the time he left.
Hartley wanted payment for all of the 73 days’ leave that he claimed to have accumulated. He said this figure was based on the 20 days a year annual leave to which he was entitled during the six years he had worked for SMD, less the actual leave he had taken during those years.
But Hartley’s claim was complicated by the fact that, in 2016, Goolam, responsible for the administration of leave, had sent an email to all SMD managers about leave accumulation. He wrote that no staffer could ‘accumulate’ more than 15 days’ leave in a leave cycle, and that any leave over and above these 15 days would be automatically forfeited.
Hartley had to admit that he was aware of the emailed notice. But, he said, it didn’t apply to him because, at the time of the email, he was a shareholder of SMD and not a regular staff member.
No proper leave records kept
Hartley claimed SMD had agreed to pay him for the days to which he said he was entitled. Though Goolam and Duminy disputed this in court, they all agreed on one thing: his leave pay when he left was for 15 days, calculated at the reduced salary of R75,000 a month, the rate he was being paid at the time. This came to R52,734.37.
Hartley, on the other hand, claimed the full 73 days, and he wanted them paid at his original salary level of R228,500 a month. According to his calculations, that would have been more than R800,000.
Snyman had several obstacles to deal with, because SMD hadn’t kept proper records of leave, employment contracts and other crucial documentation like records of significant meetings. (This is another wake-up call coming from the judgment: no business should fail to keep these basic documents.)
Employer ‘unilaterally’ reduced salary by 67% - judge
The judge said the evidence did not persuade him that Hartley had agreed to his salary being slashed by more than 65%. Further, though the law required that SMD should have kept proper salary records, including increases and reductions, Hartley was not given any written record reflecting the changes that SMD was making to his salary.
He thus concluded that SMD had ‘unilaterally’ reduced Hartley’s salary by 67%, thus breaching his contract. This entitled Hartley to end the contract by resigning and claiming damages in the form of the difference between what he should have been paid and what he was actually paid in the last three months of his job. This came to R460,500, the judge held.
So far, so good. On the question of leave pay, though, Hartley was less successful.
Payment in lieu of leave not allowed under employment law
Since there was no contract of employment showing otherwise, the BCEA would apply, the judge found. Hartley’s annual leave entitlement would have to be as laid down in this law, namely 21 consecutive days of annual leave – or 15 working days – for each annual leave cycle, to be taken ‘not later than six months after the end of the annual leave cycle.’
Quoting further from the law, he said an employer was not allowed to pay employees instead of giving them leave.
Hartley had given evidence that when he started work with SMD, he negotiated for 20 working days’ leave a year but there was no evidence that he would be allowed to accumulate unlimited days from previous leave cycles. On the contrary, there was clear evidence that employees, including Hartley, had been informed that they could not accumulate leave.
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‘Lackadaisical approach’ to taking and recording leave – judge
After noting once again the slack way that SMD kept leave records, particularly relating to senior staff, the judge reviewed earlier decisions from the courts on the question of accumulating leave.
One judgment from which he quoted at length reads that the whole purpose of the BCEA was to ‘ensure that an employee takes annual leave’ and that an employer may not refuse employees their ‘entitlement’. Allowing leave to accumulate would let both employer and employee get around the law.
Employees had to insist on their rights and benefits under the law, and any employer withholding those rights could be ‘dealt with’ under the BCEA, this earlier judgment pointed out.
Snyman said that although one judgment suggested that accumulated leave wouldn’t be forfeited, it was now ‘fairly settled’ that this was not the correct approach.
Annual leave not a ‘piggybank’ system – judge
Snyman wrote that guaranteed annual leave was never intended to act as a kind of ‘piggybank’ available for employees to use in generating a ‘lucrative cash pay-out’ when they quit the job.
The whole purpose of leave was so that employees had ‘guaranteed rest and recouperation’ and that in turn was intended to ‘enhance workplace safety and efficiency’, something that would be a risk if staff were tired.
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“Employees must know that they have to take their leave, or else they will lose it. That way, they will be motivated to enforce their rights [and] take their leave.”
For this reason, he rejected Hartley’s claim to 73 days of accumulated leave, saying there was doubt about the correctness of his leave pay calculations. Further, in terms of the SMD notice, no leave could be accumulated beyond that due in each leave cycle, and Hartley was thus entitled to pay for 15 instead of 73 days.
Leave due on 15 days to be paid at full, pre-cut, salary rate
However, it was incorrect of the employer to pay him at the reduced salary rate since the court had found the ‘salary slash’ was unlawful. Instead, he should have been paid at the rate he was earning before the cutbacks.
For 15 days’ leave at his original salary he should thus have been paid R158,167.97 while he had been paid just R52,734.37. This meant he was due the balance of just over R100,000.
All the money due to him had to be paid within 10 days and simple interest would accrue from 18 March 2021 until the funds were paid in full.
It’s a sobering judgment, one that reminds readers that every employee, from the highest management level downwards, must take their leave as provided for by the law. If they don’t, it will be lost. And there’s a second point: not only must an employer keep proper records relating to all staff, but it’s actually in the interests of employees to make sure these records exist and that they are accurate.
