In continuation of our series on the law of employment in Vanuatu we will reflect on Severance Payments under The Employment Act [Chapter 160] of the 2015 Consolidation. This area of the law is contained under Part 11, Sections 54 to 57.
What is a severance allowance or severance payment?
This is usually a lump sum of money calculated on length of service which is paid by the employer to the employee upon the employee’s period of service coming to an end.
What is the purpose of this allowance?
The purpose of this allowance is to act as a cushion for the employee when his period of service ends so that this money can be used to help support himself and his family while either looking for another job or else kept as savings to supplement his VNPF pension payments to support himself if he no longer chooses to work and has reached retirement age.
Who is entitled to be paid severance allowance?
Anyone who has been in the continuous employmentof an employer for 12 months or more.
What is considered continuous employment?
You are in continuous employment if you work for an employer for at least 4 days every week.
When is severance allowance paid?
Severance is paid in the following cases: –
- Your employer ends your contract and lets you go.
- You retire at the age of 55 years or after the age of 55.
- Your employer decides to retire you when you reach the retirement age of 55 or after the age of 55.
- You have been working for your employer for 6 years or more and you decide to leave on friendly terms with your employer. That is, there is nothing bad that you did or has happened in your job that has made you decide to leave.
- You can no longer work because you are ill or been injured and this has been confirmed by a registered doctor that you are no longer able to work.
- While the death of an employee is not specifically mentioned in the law it would be reasonable to assume that the employer would be required to pay severance as the employee could no longer work.
If you fall into one of these categories then your employer must pay you severance when you leave.
At what point in your contract is severance to be paid?
Severance is meant to be paid at the end of your contract or period of service [Section 56(5) of the Act.
Types of arrangements for payment of severance
Some employers, in order to avoid having to pay such large sums at the end of contracts will make arrangements with their employees, once the employee is working for more than 12 months to pay severance at the end of every 12 months.
While your employer is bound to pay this amount at the end of your contract, the reality is, that an employer may not have that amount of money to pay in cash immediately and may make an agreement with you to pay that money in instalments over a period of time. It is up to you to decide whether you want to accept this arrangement. If you don’t, then you should either speak with the Labour Office who can offer guidance and possibly help to negotiate more favourable terms for you or else speak with your lawyer for the purpose of filing a case in the court to force your employer to pay in full.
Of course, a court judgment is no guarantee that you could get that money in a lump sum. Whether the court were to make an order for a lump sum or instalment payments, the employer would be required to pay interest of at least 12% per annum [Section 56(6) of the Act] from the date the contract ended until the amount was paid in full.
In circumstances where an employee agrees to accept instalment payments the employer should pay interest on that amount and the employee can insist on it being paid.
When is an employee not entitled to a severance allowance?
No allowance is paid to the following persons: –
- If you have been working for less than 12 months then you are not entitled to a severance allowance.
- If you were offered a job when you were not living in Vanuatu and are not considered to be ordinarily resident in Vanuatu. There is some case law that states that if such an expat was later rehired under new contracts by the same employer and became ordinarily resident in Vanuatu then he would be entitled to severance.
- If you have been dismissed for serious misconduct or wrongdoing then you are not entitled.
- If your employer dies and you are immediately offered a job by his personal representative then you cannot claim severance.
- If you work for a partnership business and that partnership comes to an end and you are immediately offered a job by one of the members of the dissolved partnership then you cannot claim severance.
- If you were employed by a company which closes and you are immediately offered a job with another company that was created in accordance with an enactment or a scheme of reconstruction then you are not entitled to claim.
- If you are employed with a business that either disposes of a large part of that business or the part of the business where you work but you are immediately offered a job by the new person who took over the business then you cannot claim.
What happens to the payment of your allowance if the company you work for has been closed by the court or by the members of the company?
Under the Companies Act (Section 308), if a company is closing because it has debts that it cannot afford to pay then the payment of employee’s severance allowances and outstanding wages are to be paid out first before any other debts.
How is your severance pay calculated?
- For every year that you have worked you are entitled to receive one month’s wages. Therefore, if you worked for 5 years at a salary of VT50,000 per month then your severance pay-out would be (VT50,000 x 5= VT250,000).
- If you worked for 5 years and 3 months in total then that 3 months is calculated as (1/12thx VT50,000) x 3 = VT12,500
DISCLAIMER – This is a legal column to provide basic information on the law and court procedure. It is not to be used as a substitute for legal advice but to be used only as a starting point in understanding what you might need and what you might need to do.