Accumulation and forfeiture of annual leave

One of the questions employers are often faced with in the employment relationship relates to the accumulation of annual leave, and more specifically, what happens when employees do not take the leave that they are entitled to as per their statutory rights. The issue may seem to be an easy one, but in light of case law discussing the matter, it may not always be as clear cut as it seems.

In determining what the employer’s obligations are regarding annual leave and payment thereof, it is necessary first and foremost to refer to the Basic Conditions of Employment Act (BCEA), which regulates the provision of annual leave. Chapter 3 of the Act sets out the provisions regarding leave, with sections 20 and 21 focused specifically on annual leave. To clarify the main objectives of the Act relating to this topic, I shall only refer to the sections of the Act with direct bearing on the accumulation and forfeiture of annual leave. Section 20 is the starting point for the question we are dealing with and provides for the following:

20 Annual leave

• In this Chapter, ‘annual leave cycle’ means the period of 12 months’ employment with the same employer immediately following-
  • An employee’s commencement of employment; or
  • The completion of that employee’s prior leave cycle.
• An employer must grant an employee at least-
  • 21 consecutive days’ annual leave on full remuneration in respect of each annual leave cycle; or
  • By agreement, one day of annual leave on full remuneration for every 17 days on which the employee worked or was entitled to be paid.
  • By agreement, one hour of annual leave on full remuneration for every 17 hours on which the employee worked or was entitled to be paid.
• An employer must grant annual leave not later than six months after the end of the annual leave cycle.
• Annual leave must be taken-
  • In accordance with an agreement between the employer and employee; or
  • If there is no agreement in terms of paragraph (a), at a time determined by the employer in accordance with this section.
• An employer may not pay an employee instead of granting paid leave in terms of this section except-
• On termination of employment; and
• In accordance with section 40 (b) and (c).

The provision of most importance to the employer is subsection 2, which provides that the employee must be granted a minimum of 21 consecutive days’ annual leave on full remuneration per leave cycle. The consecutive days include weekends, and as such would translate to 15 working days for employees working a five-day week, and 18 working days for employees working a six-day week. Leave for a five-day and six-day week would accumulate at 1.25 and 1.5 days’ leave per month respectively.

This provision would automatically be in force unless the parties agree in the contract of employment to accumulate leave as per subsection 2(b) or (c). Please also note that these conditions may also be varied through a collective agreement or sectoral determination, each of which would stipulate the terms applicable. This is the absolute minimum with which the employer must comply, failing which he would render himself liable for legal action as the employee can go the Department of Labour to enforce his or her right to the minimum leave days.

The second point of importance to the employer is subsection 4 which states that an employer must grant annual leave not later than six months after the end of the annual leave cycle.

This provision is usually the one that causes the most confusion when it comes to the forfeiture of leave should it not be taken within the six months following the conclusion of the cycle. Although the provision makes it clear when it is expected for leave to be granted, there is nothing in the provision implying that leave is automatically forfeited should it not be taken within this time frame. For guidance on this question, it is necessary to refer to case law on the matter.

There have been somewhat conflicting views on what exactly the obligations of the parties are in this regard, and I will be referring to two specific cases which illustrate the different points of view on the matter.

In Jardine v Tongaat, the employee at the time of dismissal had accumulated 48.8 days of annual leave. The company had a leave policy in place providing for accumulation of leave up to a maximum of 40 days, and as such it paid the employee for 40 of the days owed to him only, leaving the balance of 8.8 days in dispute.

As the company granted its employees 20 working days’ annual leave as opposed to the minimum of 15 working days, it contended that as per section 19(2) of the Act, the Chapter did not apply to the leave in question as it was in excess of the employee’s statutory entitlement. Therefore, it was held that the company leave policy should hold force as it was the more favourable of the two provisions.

In its response, the court noted that the purpose of the BCEA was to advance economic development and social justice through the primary object of the Act, which was to establish and enforce basic conditions of employment and to regulate variations of such conditions.

Read in this context, section 20(4) of the Act exists to protect employees who might otherwise be denied annual leave. As such, the provision imposed an obligation on the employer which is enforceable at the insistence of the employee. It does not however create an obligation on the employee to take leave within the six months following the relevant annual leave cycle. Neither is there any indication that leave not taken as per section 20(4) is automatically forfeited. The provision does not specifically preclude payment for leave not taken within six months following the cycle and there is nothing preventing an employer from requiring the employee to take annual leave to prevent leave from accumulating outside of the period prescribed by the section.

The court continued by reiterating that section 40(b) provides that on termination of employment, the employer must pay the employee for any period of annual leave due in terms of section 20(2) that the employee has not taken. Section 20(4) does not prohibit accumulation of leave and as such section 40(b) enforces the employer’s obligation to pay the employee for any leave not taken, limited to leave due in terms of section 20(2). This contention supports the opinion that leave in terms of section 20(2) that has not been taken within six months following the annual leave cycle, remains payable to the employee and is not automatically forfeited.

The court however conceded that there was no obligation on the employer under these clauses to pay the employee for leave accumulated in excess of the statutory minimum. However, a claim for payment of leave in excess of the statutory minimum was not automatically forfeited and would depend on the circumstances of each individual case and the agreement entered into by the parties.

In this particular case, the employee’s claim for payment for leave in excess of the minimum entitlement was successful, firstly due to the fact that the company’s forfeiture clause and the clause limiting accumulation to a maximum of 40 days was less favourable than provision 40(b) of the Act, which placed no limit on accumulation and did not provide for forfeiture.

Secondly, the court determined that although the company was not obliged by law to pay for the excess leave, the employee’s claim was enforceable due to the fact that the employer, as per its own leave policy, had an obligation to ensure that leave was taken within the relevant time frame, or to document reasons for failure to do so in exceptional circumstances. The company had done neither.

Thirdly, due to the fact that the employee was suspended and subsequently dismissed for misconduct, it was ruled that the employee had been deprived of his right to take leave as required, by circumstances beyond his control.

Finally, as the human resources director had not given the employee the opportunity to be heard before exercising his discretion to withhold payment for excess leave, this constituted at least a procedural irregularity.

In summary, the court established that the company had an obligation to pay an employee for leave in terms of section 20(2) that had not yet been taken, even if such leave had accumulated outside of the six months following the relevant annual leave cycle. As such it decided that annual leave in terms of the statutory minimum could not be forfeited if not taken within this time frame.

As for leave provided in excess of the statutory minimum, it is clear that the employer is not obliged by law to pay such accumulated leave, but that this would be regulated by the agreement between the parties.

The court in Jooste v Kohler Packaging had a different view on the matter. In this judgement the court was of the opinion that section 40 of the Act contemplated payment specifically in terms of leave accrued in the annual leave cycle directly preceding that in which the employment was terminated, as well as the current cycle where leave would accumulate on a pro rata basis. This view is derived from Schedule 3 Item 6 of the Act and was reaffirmed in the unreported case of Newton v Wilbur Ellis Co.

Accumulation of the minimum statutory leave is thus limited to one year and six months. The court contended that the BCEA contemplates that leave will be taken as prescribed and as such the problem of accumulation should not arise. Permitting payment for statutory leave accumulated from prior cycles allows both the employer and the employee to circumvent the Act, in which case section 20(2) would serve no purpose.

The court stated that to contract for the accumulation of leave in terms of section 20(2) outside of the prescribed time frame would be in contravention of the main provisions of the Act and is not permissible.

It was stated that the employee had an obligation to insist on the right to annual leave, and the employer’s refusal to grant such leave could be dealt with in terms of the BCEA.

The court however conceded that parties are entitled to regulate leave in excess of the statutory minimum by agreement. It would be permissible for parties to agree to the accumulation of additional leave and the employer would then be obligated to pay the employee for such accumulated leave as per the agreement.

In this case the employee’s claim for payment of leave in excess of the statutory minimum failed due to the fact that the employee had been made aware on numerous occasions of the forfeiture policy, the company prompted him to take leave to avoid forfeiture, and when the employee accumulated in excess of the maximum allowance the company initiated a plan of action to normalise the accumulated leave. The employee however failed to adhere to the action plan and continued to accumulate leave even though he was expressly instructed to make sure that this did not happen in future.

In addition to this, the court found that the right to accumulate leave did not automatically imply the right to payment in lieu of leave taken.

From the discussion above it is clear that the courts have not yet come to an absolute conclusion regarding the forfeiture of accumulated leave if it is not taken within the prescribed period. The legislation remains open to interpretation, but the fact remains that it does not provide for forfeiture of leave that has not been taken.

As such, it is advisable that companies strictly regulate the accumulation and payment of leave accrued through implementing measures to prevent the problem from arising. Make sure that any agreements regarding leave are clearly and unambiguously stated in the contract of employment, and make sure that management is trained on how to keep track of leave accumulation, so that they can require employees to take leave within the stipulated time frame. This protects the company from exorbitant claims for leave not taken upon termination of employment, ensures compliance with the BCEA, and helps the company to manage the work force more efficiently and to reduce labour costs.

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This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)