RETRENCHMENT

Employers need to be reminded of the factors that render dismissals for operational requirements (retrenchments) fair and unfair. Many employers still get it wrong and, in many cases they land up paying a very heavy price. In order to win a retrenchment case at the CCMA or Labour Court, the employer must fulfil its onus of proving that the retrenchment was fair in all respects. It is the employer who has the duty of proving that there was a genuine and valid reason for retrenching staff in the first place.

The Labour Relations Act, permits employers to dismiss employees for operational requirements, which is defined as requirements based on economic, technological, structural or similar needs of the Employer.

Economic reasons– relates to the financial management of the enterprise;

Technological reasons– relates to the introduction of new technology which effects work relationships either by making existing jobs redundant or by requiring employees to adapt to the technology or consequential restructuring of the workplace;

Structural reasons– relate to the redundancy of posts consequent to a restructuring of the Employer’s enterprise.

In order to win a retrenchment case at the CCMA or Labour Court, the employer must fulfil its onus of proving that the retrenchment was fair in all respects.

Furthermore, they must prove that the decision as to which employees will be retrenched and which will keep their jobs was arrived at fairly.

The retrenchment procedure as laid down in the Labour Relations Act (LRA) must be followed properly and in good faith by the employer. The employer must also prove that he/she has shared with the targeted employees (or their representatives) all documentary and other information pertaining to the retrenchment.

In the case of Numsa and others v Dorbyl Ltd and another (2004, 9 BLLR 914) 176 employees embarked on a protected strike. Thereafter, the plant at which they worked was closed down and 122 employees were retrenched. The employees claimed that the retrenchments were unfair because (among other reasons) they had not been properly consulted by the employer before being retrenched and the options were not explained to them. The court found that the decision to retrench was taken at an executive meeting held before the employer had consulted the employees regarding the retrenchments. This rendered the consultations meaningless as the employer had already made up its mind to go ahead with the retrenchment procedure and, therefore, it went into the consultations with a foregone conclusion.

As a good-faith consultation is the core requirement of retrenchment procedure, the retrenchment was procedurally unfair. The employer was required to pay each of the 122 retrenched staff two months’ remuneration in compensation.

An employer must allow a consulting party to respond to a retrenchment notice. If the employer disagrees with the response, he must state why. If the consulting party responds in writing, the employer must respond in writing.

REQUIRED RETRENCHMENT PROCEDURES:

CONSULTATION

Like all dismissals retrenchments must be both procedurally and substantively fair. Section 189 of the Labour Relations Act requires all consulting parties to reach consensus on the various matters specified.

WHEN MUST CONSULTATION COMMENCE

The Labour Relations Act (LRA) requires that consultation must take place when the employer contemplates retrenchment.

WHO MUST YOU CONSULT WITH

Section 189 (1) of the LRA provides that, before retrenching, employers must consult any person whom the employer is required to consult in terms of the collective agreement. If there is no collective agreement, meetings should be held individually with all Employees that could be affected by the retrenchment. If the employee is a member of the union, the Union must also be consulted.

WHAT MUST THE CONSULTATION BE ABOUT

Section 189 (2) of the LRA provides that the consulting parties must attempt to reach consensus on the following matters:

 – Avoiding the dismissal;

 – Appropriate measures to minimize the dismissals;

– Measures to change the timing of the dismissals;

– Appropriate measures to mitigate the effects of retrenchment;

– The method for selecting the employees to be dismissed;

– Severance Pay.

NOTIFICATION OF RETRENCHMENT

Section 189 (3) of the LRA requires the employer to disclose in writing to the employees or their unions all relevant information including but not limited to:

– The reasons for the Retrenchment;

– Alternatives considered and the reasons why they were rejected;

– The number of Employees likely to be affected;

– Proposed method of selection;

– Severance pay;

– Assistance that the employer will be offering;

– Possibility of future re- employment.

OPPORTUNITY FOR FEEDBACK

The employer must allow the other party to make representations.

CRITERIA FOR SELECTION

Section 189 (7) of the LRA provides that employers may select employees to be retrenched according to the criteria they have agreed upon by the consulting parties. If no criteria have been agreed upon that the selection must be fair and objective, the LIFO (‘last in’ – ‘first out’) principal is often applied but is not the only principal.

NOTICES OF TERMINATION

Notices are given to the Employees who are to be retrenched after the consultation process has been completed

SEVERANCE PAY

Employees are entitled to severance pay only if they are retrenched for operational requirements. The requirements regarding severance pay are set out in section 41 of the Basic conditions of Employment Act. Section 41 provides that an employer must pay an employee dismissed for operational requirements severance pay equal to at least one week’s remuneration for each completed year of service with that employer.

 PAYMENTS

The employer must pay the retrenched employee the following payments:

– Severance pay;

– Any outstanding leave to be paid out; and

– Notice pay.

Disputes

If a dispute arises as a result of retrenchments workers may strike;

– an employer may lock workers out; and

– the parties may agree to change the consultation or facilitation periods.

Referral to Labour Court

If an employer’s retrenchment procedure is unfair, a consulting party may apply to the Labour Court, within 30 days after the employer’s notice, to order the employer to –

– comply with a fair procedure;

– prevent him from retrenching a worker; or

– re-employ a worker; or

– award compensation to a worker.

If a party has already referred a retrenchment dispute to the Labour Court, it may not give notice to strike.

If a party has already given notice to strike, that party may not refer the dispute to the Labour Court.

There are a number of possible reasons for the fact that employers are still not complying with dismissal law, including:

– Employers know the law well enough but do not believe it will be applied to them;

– They hear about the law but do not believe it;

– The operational circumstances of the employer are so dire that the pressure distracts the employer from the legal aspects of the retrenchment;

– There is also a mistaken belief that, if there is a good reason for retrenchment, the court will be lenient on the procedural side of the case;

– Employers misuse so-called retrenchments to get rid of undesirable employees. As their priority is getting rid of such employees, the legal requirements are given little consideration;

– Employers are given poor legal advice regarding retrenchment law and implementation strategy.

The courts see retrenchments as no-fault terminations. This means that the employee is losing his/her job through no fault of his/her own. In addition, the unemployment rate in South Africa is extremely high and it is very difficult for retrenchees to find new jobs.

For these reasons the courts have no hesitation in protecting the rights of retrenchees and making employers pay heavily where they deviate from the law.