CR330 Credit insurance Credit insurance – claim under credit life policy for retrenchment benefit

See too: CR, Retrenchement,

CR330
Credit insurance

Credit insurance – claim under credit life policy for retrenchment benefit – expiry of a renewable contract not grounds for excluding liability

Background

1. The complainant had a “credit card debt protection” policy affording him life, disability and retrenchment cover in respect of his credit card agreement.

2. The complainant was employed under a year-long fixed term contract, which was annually renewed, for four and a half years, commencing on 27 September 2007.

3. On 12 March 2012 the employer gave the complainant a letter, advising him that his fixed term contract was due to end on 31 March 2012, and that the renewal of the contract for the next year would depend on the availability of work from its client. The employer also provided a letter dated 12 June 2012 indicating that his employment had ended on 31 March 2012, ie the contract was not renewed.

4. The complainant thus found himself unemployed and lodged a claim under his policy for a retrenchment benefit.

5. “Retrenchment” was defined in the policy as follows:

“Your forced retrenchment from employment, in terms of the Labour Relations Act, without income from any source as a direct result of:
• New technology being introduced by your employer; or
• Reorganisation by your employer; or
• Expectation of adverse conditions by your employer, which results in staff reductions”.

6. The insurer repudiated the claim on the grounds that non-renewal of a fixed term employment agreement does not constitute a retrenchment in terms of South African law.

7. The insurer apparently relied on an exclusion in the policy which read as follows:

“Exclusions applicable to retrenchment

We will not pay any amount:

If your employment ended due to your resignation or if you accepted voluntary retrenchment, if a non-renewable fixed-term contract or a contract of a temporary or casual nature is not renewed, any form of retirement or fair dismissal under your contract of employment”. [Our emphasis]

Discussion

8. We pointed out to the insurer that the complainant’s contract was renewable, the renewal depending on the availability of work from the employer’s clients (according to a letter from the employer). The employer’s letter also confirmed that the complainant’s contract was renewed annually. The complainant had been in employment with the same employer on a full-time basis for four and a half years, and this could not be seen as “a non-renewable fixed-term contract or a contract of a temporary or casual nature”.

9. We pointed out further that the fact that the contract was renewable would remove the possibility of anti-selection that would exist with a non-renewable fixed term contract, where the date of termination of employment would be known in advance.

10. The insurer responded, arguing as follows:

● that when the employer gave notice (in its letter of 12 March 2012) that the renewal of the contract term ending on 31 March 2012 depended on the availability of work from its clients, and that it would keep employees employed as long as it had work available, it changed the nature of the employment agreement from a fixed term contract to a temporary agreement;

● that the employment agreement had been a non-renewable fixed term agreement, and that all contract workers were made aware that they would only have employment with the company as long as the company had work from its client. The insurer argued that “the termination date of the contract was in fact known every year, for a year in advance, upon renewal thereof, and only changed when the employer gave the employee notice of the renewal of the agreement”;

● that the employer’s failure to follow the correct retrenchment procedures as stipulated in Section 189 of the Labour Relations Act constituted an unfair dismissal, and not a retrenchment. The complainant should thus approach the CCMA, bargaining council or Labour Court for relief.

11. The matter was discussed at an adjudicators meeting. It was decided that a provisional ruling should be issued, after dealing with the above arguments as follows:

● that it may be so that the employment agreement changed from a fixed term contract to a temporary agreement, but such a temporary agreement would operate from 1 April 2012, the day after the fixed term agreement ended on 31 March 2012. In fact no temporary agreement came into being, since the complainant did not work again after 31 March 2012. This was not relevant to the fact that the complainant lost his employment when a renewable contract was not renewed.

● that in our view the complainant had a reasonable expectation that his contract would be renewed again, since it had been renewed several times between 2008 and 2012. We cited John Grogan in Workplace Law (7th edition), addressing an aspect of the legitimacy of an employee’s expectation as follows:

“Whether the employer can quash the employee’s claim to a reasonable expectation simply by specifying the termination date each time the contract is entered into is a moot question. The weight to be attached to such advance notice probably diminishes in proportion to the number of successive contracts the parties have concluded”.

● that a retrenchment is in fact a form of dismissal ie it is a dismissal for operational requirements. Section 186(b) of the Labour Relations Act expressly provides that the non-renewal of a fixed-term contract constitutes a dismissal if the employee reasonably expected the employer to renew the contract but the employer did not do so. That in our view was what had happened in this case.

12. We pointed out in the provisional determination that the complainant had lost his job as a direct result of reorganisation by his employer, alternatively the expectation of adverse conditions by his employer, which resulted in staff reductions. The form this took in the complainant’s case was the non-renewal of a renewable fixed-term contract. In our view a policyholder could not be penalised by the insurer if his employer did not follow the legislated retrenchment procedures in retrenching him.

13. We reiterated that the fact that the complainant’s contract was renewable, and was renewed several times, would remove the possibility of anti-selection that would exist with a non-renewable fixed term contract, where the date of termination of employment would be known in advance.

14. Our provisional ruling was therefore to the effect that the insurer was liable under the policy to pay the retrenchment benefit to the complainant.

Result

15. The insurer accepted the provisional determination and paid the claim.

SM
May 2013

CR330
Retrenchment

Credit insurance – claim under credit life policy for retrenchment benefit – expiry of a renewable contract not grounds for excluding liability

Background

1. The complainant had a “credit card debt protection” policy affording him life, disability and retrenchment cover in respect of his credit card agreement.

2. The complainant was employed under a year-long fixed term contract, which was annually renewed, for four and a half years, commencing on 27 September 2007.

3. On 12 March 2012 the employer gave the complainant a letter, advising him that his fixed term contract was due to end on 31 March 2012, and that the renewal of the contract for the next year would depend on the availability of work from its client. The employer also provided a letter dated 12 June 2012 indicating that his employment had ended on 31 March 2012, ie the contract was not renewed.

4. The complainant thus found himself unemployed and lodged a claim under his policy for a retrenchment benefit.

5. “Retrenchment” was defined in the policy as follows:

“Your forced retrenchment from employment, in terms of the Labour Relations Act, without income from any source as a direct result of:
• New technology being introduced by your employer; or
• Reorganisation by your employer; or
• Expectation of adverse conditions by your employer, which results in staff reductions”.

6. The insurer repudiated the claim on the grounds that non-renewal of a fixed term employment agreement does not constitute a retrenchment in terms of South African law.

7. The insurer apparently relied on an exclusion in the policy which read as follows:

“Exclusions applicable to retrenchment

We will not pay any amount:

If your employment ended due to your resignation or if you accepted voluntary retrenchment, if a non-renewable fixed-term contract or a contract of a temporary or casual nature is not renewed, any form of retirement or fair dismissal under your contract of employment”. [Our emphasis]

Discussion

8. We pointed out to the insurer that the complainant’s contract was renewable, the renewal depending on the availability of work from the employer’s clients (according to a letter from the employer). The employer’s letter also confirmed that the complainant’s contract was renewed annually. The complainant had been in employment with the same employer on a full-time basis for four and a half years, and this could not be seen as “a non-renewable fixed-term contract or a contract of a temporary or casual nature”.

9. We pointed out further that the fact that the contract was renewable would remove the possibility of anti-selection that would exist with a non-renewable fixed term contract, where the date of termination of employment would be known in advance.

10. The insurer responded, arguing as follows:

● that when the employer gave notice (in its letter of 12 March 2012) that the renewal of the contract term ending on 31 March 2012 depended on the availability of work from its clients, and that it would keep employees employed as long as it had work available, it changed the nature of the employment agreement from a fixed term contract to a temporary agreement;

● that the employment agreement had been a non-renewable fixed term agreement, and that all contract workers were made aware that they would only have employment with the company as long as the company had work from its client. The insurer argued that “the termination date of the contract was in fact known every year, for a year in advance, upon renewal thereof, and only changed when the employer gave the employee notice of the renewal of the agreement”;

● that the employer’s failure to follow the correct retrenchment procedures as stipulated in Section 189 of the Labour Relations Act constituted an unfair dismissal, and not a retrenchment. The complainant should thus approach the CCMA, bargaining council or Labour Court for relief.

11. The matter was discussed at an adjudicators meeting. It was decided that a provisional ruling should be issued, after dealing with the above arguments as follows:

● that it may be so that the employment agreement changed from a fixed term contract to a temporary agreement, but such a temporary agreement would operate from 1 April 2012, the day after the fixed term agreement ended on 31 March 2012. In fact no temporary agreement came into being, since the complainant did not work again after 31 March 2012. This was not relevant to the fact that the complainant lost his employment when a renewable contract was not renewed.

● that in our view the complainant had a reasonable expectation that his contract would be renewed again, since it had been renewed several times between 2008 and 2012. We cited John Grogan in Workplace Law (7th edition), addressing an aspect of the legitimacy of an employee’s expectation as follows:

“Whether the employer can quash the employee’s claim to a reasonable expectation simply by specifying the termination date each time the contract is entered into is a moot question. The weight to be attached to such advance notice probably diminishes in proportion to the number of successive contracts the parties have concluded”.

● that a retrenchment is in fact a form of dismissal ie it is a dismissal for operational requirements. Section 186(b) of the Labour Relations Act expressly provides that the non-renewal of a fixed-term contract constitutes a dismissal if the employee reasonably expected the employer to renew the contract but the employer did not do so. That in our view was what had happened in this case.

12. We pointed out in the provisional determination that the complainant had lost his job as a direct result of reorganisation by his employer, alternatively the expectation of adverse conditions by his employer, which resulted in staff reductions. The form this took in the complainant’s case was the non-renewal of a renewable fixed-term contract. In our view a policyholder could not be penalised by the insurer if his employer did not follow the legislated retrenchment procedures in retrenching him.

13. We reiterated that the fact that the complainant’s contract was renewable, and was renewed several times, would remove the possibility of anti-selection that would exist with a non-renewable fixed term contract, where the date of termination of employment would be known in advance.

14. Our provisional ruling was therefore to the effect that the insurer was liable under the policy to pay the retrenchment benefit to the complainant.

Result

15. The insurer accepted the provisional determination and paid the claim.

SM
May 2013

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