Answer to a question from a reader

How can we trust that the Post Office will pay our Voluntary Severance Packages if they mismanaged our pensions and UIF?

The short answer

You cannot claim UIF if you take a Voluntary Severance Package. You need legal advice.

The whole question

I have been a postman for 24 years. My colleagues and I are worried about our jobs.

For the past four years, our employer has been deducting pension contributions from our income but it doesn't seem like the money was paid to Sanlam. We checked the website and it says that our contributions stopped four years ago. We believe our employer has been doing the same with our UIF. It also seems that our medical aid contributions haven't been paid. When one of my colleagues went to the hospital, she was refused treatment because apparently the Post Office medical aid owes them millions of rands. Besides all of this, two of our colleagues took a Voluntary Severance Package (VSP) in January but still haven't been paid in full.

A few weeks ago, some of my colleagues and I were offered VSPs. If we accept, we will receive one week's pay for each year we worked. The higher-ups have been putting pressure on us to comply but we don't know if we can trust their promises. And what about our pensions and UIF? We don't know what to do. Our union (Communications Workers Union - COSATU affiliated) doesn't have answers for us.

The long answer

Just to confirm, to start with, that all the things that you suspect were happening, which you describe as the background to your questions, are correct:

  • It was confirmed in May 2021 that the South African Post Office (SAPO) had not paid the deductions from workers’ salaries for pension to the Post Office Retirement Fund, as it is legally required to do, from May 2020. This meant that SAPO owed R40-million a month to the Fund. 

  • It is also true that the post office has been using the money it should have paid over to the Fund, to pay workers’ salaries. Chris Gilili in a Mail & Guardian article on 27 May 2021, stated that the Post Office had failed since April 2021 to pay R842-million to the pension fund and to the medical aid for its workers, and the PO spokesman, Johan Kruger, said that the Post Office had ‘decided to pay employees their take-home salaries’ while it was negotiating payment terms with the pension fund and medical aid. The new Post Office CEO, Nomkhita Mona, said the Post Office had reached an agreement with medical aid and pension to settle the outstanding payments from January 2022, and was also in discussion with UIF about settling amounts owed. She said SAPO needed an R8-billion bailout from Treasury. 

  • The Supreme Court of Appeal (SCA) handed down a scathing judgment on 30 December last year, in the case of Post Office Retirement Fund v South African Post Office SOC Ltd and Others, ordering SAPO to pay contributions to the Post Office Retirement Fund.

Cliffe, Dekker and Hofmeyr note that “The SCA has also suggested that the non-payment of the contributions constitutes an unfair labour practice. If so, this is actionable under the Labour Relations Act…”

  • SAPO has also not been paying SARS. Ray Mahlaka, in a Daily Maverick article in November 2021, said that SAPO owed SARS R600-million in PAYE. He said that, “The PO continues to pay its workers their full salaries and probably deducts their PAYE contributions — but then doesn’t pay the money over to SARS.” This is obviously illegal. He said that in the private sector, business owners had been prosecuted for not paying over PAYE, UIF, and provident fund deductions. But besides SAPO, state-owned entities including SAA, SA Express and Denel had also, at some point, failed to pay tax, UIF and provident fund benefits, and had not faced legal consequences.

  • In terms of the medical aid (Medipos), which workers were told they would not belong to after September 2022, the DA spokesperson on communications, Dianne Kohler-Barnard, said on 6 October that the Post Office representatives had admitted to the parliamentary oversight committee that they had only paid over the workers’ contributions but not SAPO’s contribution, and that they now owed R700-million.

But there has been a dramatic new turn of events: the DA made a statement on 7 October that “After intense pressure from the DA, the bank account of the SAPO has been seized and R60-million attached. Medipos has assured SAPO workers their medical aid benefits will be reinstated.”

  • And, yes, SAPO has drastically reduced the number of post offices – around 144 have been closed, of which many had not been able to pay their rent, creditors and service providers. SAPO says this was because of Covid, but as the SCA noted: while Covid may have made things worse, the evidence indicated that SAPO’s financial woes pre-dated the pandemic and were caused by failures of management.

As to advice on what employees should do now:

It is certainly true that the post office is in dire straits: the Auditor-General, Tsakani Maluleke, told Parliament in October 2022 that the Post Office was insolvent. She issued SAPO with a disclaimer, which is the worst possible audit outcome. She said that SAPO had losses of at least R2.2 billion and its debts were R4 billion more than its assets, and that fruitless and wasteful expenditure during the 2021/2022 tax year amounted to R648.2 million. 

Although SAPO’s decline, largely due to mismanagement, has been evident for some time, things are now happening at great speed. There are two possible routes for an insolvent business to take: going into business rescue or being liquidated.

Werksmans Attorneys in a 2013 article on business rescue explain: 

“Business rescue aims to rehabilitate a company in financial distress by the temporary supervision of the company and the management of its affairs, business and property by a business practitioner. Being ‘in financial distress’ means being reasonably unlikely to be able to repay debts within the next six months.”

Being in business rescue provides a temporary stay on the rights of creditors against the company or against property it possesses. The business practitioner has to develop, and implement, if approved, a business rescue plan to restructure the company so that it becomes solvent or, if that is not possible, results in a better deal for the creditors than would normally be the case if a company is liquidated. 

The article goes on to say: “Affected persons are important role players in the business rescue process. An affected person is a shareholder, creditor, employee (or their representative) or a registered trade union representing employees of the company. Affected persons have various rights throughout the business rescue process (section 128(1)(a)).”

But the courts have made it clear that business rescue is only possible if there is a reasonable chance that the business can become solvent again: it’s not for the chronically ill or the dying, but for “ailing corporations, which given time will be rescued and become solvent’, as the court said in the case of Welman v Marcelle Props CC. So, it looks as if business rescue is not on the table for SAPO.

The other way it could end is by SAPO being liquidated.

From Bowmans Law 2019: “The winding-up of insolvent companies is governed by the Insolvency Act 24 of 1936 (Insolvency Act) and the Companies Act 61 of 1973 (Old Companies Act).”

Liquidation is the process of realising (selling) all the assets of the company so that the creditors can be paid. The company can go into voluntary liquidation by a decision by its board of directors, or it can be instigated by a creditor who has not been paid. There is often an application for provisional liquidation which must be confirmed after six weeks. Before the date of the hearing for the application for liquidation, the company, the company’s employees, the trade union that represents them and SARs must all be informed and proof of this must be given to the court. The sheriff of the court must deliver the court order granting the liquidation order to all the parties mentioned above.

The liquidators must sell all the assets in order to pay the creditors in an agreed order of preference as set out in the Insolvency Act: First, secured creditors (like a landlord or a bond), second, preferent creditors (which include employees’ remuneration (up to a prescribed amount) and SARS, and third, concurrent creditors (which are any creditors who will be paid after the preferent creditors).

This usually takes between six months and two years. 

The first state-owned enterprise to go into liquidation was South African Airways (SAA). It went into business rescue in 2019, which failed, and then was in provisional liquidation since April 2020, and only resumed trading in September 2021. In February 2021, reported the parliamentary monitoring group, the Department of Public Enterprises was unsure of the process that would occur upon post-liquidation, as a state-owned enterprise (SOE) being liquidated was uncharted waters, and it said it needed to consult with National Treasury and the Department of Labour. More than R30-billion of bailouts failed to save the airline after ten years of financial mismanagement.

The majority of employees ended up opting for severance packages and the remainder went through a section 189 retrenchment process. Of the R10.3-billion the rescue plan required, about R2.2-billion was to pay for packages and Section 189 retrenchments.

BDO in a 2018 online article says that the company will stop making contributions to its employees’ retirement funds once the effective date of liquidation is decided by the liquidators. “Claims are processed as ‘deemed resignations’” and the members must be informed of the process the company is following.

Cliffe, Dekker and Hofmeyr point out that in South African Reserve Bank v Leathern (854/2020) [2021] ZA (SCA) 102 (20 July 2021), the Supreme Court of Appeal emphasised the principle that it is only those assets which belong to the company which vest in the liquidator. Assets which may be in the possession of the company but belonging to a third party, or assets in respect of which the company has control but which do not belong to the company, do not vest in the liquidator.

As I understand, it means that your pensions cannot be touched because they do not belong to SAPO, but to you so they are not funds that the liquidator may use.

If SAPO is liquidated, your benefits will only be paid out once the liquidation process has been finalised, which could take six to twelve months. The first R25,000 is taxed at 0%. 

A Labour Protect article says that if the trustee/liquidator has not already terminated the services of employees, the contracts will automatically terminate after 45 days of the trustee/liquidator having been appointed. 

On severance pay: An employee whose services have been terminated in this manner is entitled to claim severance benefits as if they were dismissed for operational reasons, from the employer's insolvent/liquidated estate in terms of section 41 of the Basic Conditions of Employment Act.

The Labour Appeal Court (LAC) has noted that section 41(2) of the Basic Conditions of Employment Act (BCEA) clearly provides that if employees are dismissed for operational reasons, they are entitled to severance pay equal to one week’s remuneration for each completed year of service with the same employer.

The trade union, Solidarity, which took SAPO to court about its failure to pay medical aid contributions, says that a Voluntary Severance Package (VSP) “must be more beneficial than the normal statutory compulsory package of one week for every completed year.”

It goes on to say that in an effort to accelerate the process, such a VSP may often be to the benefit of both parties. There are however a number of important matters to keep in mind:

  1. A VSP is usually an independent contract that is not necessarily linked to the lay-off.

  2. A VSP, due to its voluntary nature, is therefore seen as an ordinary agreement with the result that you will probably not be able to apply for a tax rebate.

  3. In the same way you will not necessarily be entitled to claim unemployment insurance.

  4. VSPs do not have to be applied the same constantly. In other words, if an employer included certain benefits in VSPs in previous years, they do not necessarily have to be included again when lay-offs are on the cards. If the VSP is more than the statutory minimum, the benefits will have to be considered.

  5. Lastly, when a VSP is secured, it usually contains a “full and final” clause, with the result that if the agreement was signed, the employer cannot later argue that the lay-off had been unfair.

Finally, to return to your questions again:

  1. If SAPO is only offering VSPs with one week’s pay for every year of service, that is what you are entitled to, anyway, under the BCEA. The problem may be that without signing one, you may have to fight for what you are owed and it may take a long time. I think you need to take legal advice here. I will include some contact numbers at the end of this email that might be helpful.

  2. Can you trust the Post Office? Given how they have behaved, I doubt it. Again I think you need legal advice.

  3. The pension payouts – you are entitled to your pension, but you need to ask for a copy of the Pension Funds rules and perhaps ask for an appointment with the Administrator to ask for clarity on how and when the pensions will be paid out.

  4. If you sign a VSP, you will have resigned voluntarily, and you will not qualify for UIF. You can only claim UIF if you have been dismissed or retrenched or if the contract has expired.

You could approach one of the following organisations for help and advice:

Legal Aid

Legal Aid is a means-tested organisation and must assist people who cannot afford a lawyer. Here are their contact details:

  • Legal Aid Advice Line (Toll-free): 0800 110 110

  • Please-Call-Me number: 079 835 7179 (pro bono means in the public good, so if the lawyers think your case is in the public good, they may agree to take it on free of charge)

Unit 1021, 2nd Floor Westminster House 122 Longmarket Street (Cnr. Adderley St.) Cape Town 8001

087 470 072

UWC Law Clinic

Old Library Building, University of the Western Cape, Modderdam Rd

021 959 2756

Webber Wentzel

Heerengracht Street, Convention Tower, Cape Town City Centre · In the Cape Town International Convention Centre

021 431 7000

Answered on Nov. 8, 2022, 12:04 p.m.

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Please note. We are not lawyers or financial advisors. We do our best to make the answers accurate, but we cannot accept any legal liability if there are errors.