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Retrenchments Under COVID-19: Ensuring Compliance with the Law

by Humphrey Shivamba | Senior Associate

The unprecedented Coronavirus pandemic has caused a wave of hysteria across global economies, more especially, it has created a wave of panic and uncertainty amongst business owners who are facing financial distress due to the Nationwide lockdown. This result in business owners having to consider the possibility of retrenchments in order to keep their companies afloat. However, most businesses realise that if they implement large scale retrenchments, not only do they run the risk of losing valuable skills but may also reduce the buying power of the public. This would further reduce their ability to earn an income.

Recently, the issue of retrenchments has been one of national interest, especially in light of the Labour Court ruling in National Union of Metalworkers of South Africa (NUMSA) obo Members and Another v South African Airways (SOC) Ltd and Others. In this case, the Labour Court found that the SAA Business Rescue Practitioners failing to present a business rescue plan, and merely issuing Section 189 notices commencing a consultation process over proposed retrenchments, was procedurally unfair. The Court noted that the business rescue practitioners may only initiate a retrenchment process once a business rescue plan has been presented to all affected parties including SAA workers, their representative trade unions, creditors and others. The Court reiterated that fair labour procedures should afford workers the right to impartial labour practices and ensure preservation of job security.

Taking into consideration that effective consultation is imperative for lawful retrenchments to take place, the following article will unpack some of the important issues that should be considered if a company contemplates retrenchments and intends on complying with the law.

 

What constitutes a retrenchment?

Retrenchment is a form of dismissal; however, the dismissal is not based on a fault of the employee. Retrenchments are as a result of an employer reviewing their business needs (operational requirements) in order to increase profits or limit losses, by way of reducing their number of employees. Considering the nationwide lockdown instituted in mid-March several businesses have lost considerable income and are unable to pay for monthly expenses and their employees, let alone retain their full staff compliment.

 

When can an Employee be Retrenched?

An employer can retrench an employee for operational, economical, technological, or structural reasons. Retrenchments as a result of COVID-19 will more often than not be as a result of economic reasons, but irrespective of the reason, the retrenchments need to be lawful. In order for retrenchments to be lawful, it is required that the employer explores all possible options to find alternatives to retrenchment. In the event that no alternative is found, the onus is on the employer to prove that the retrenchment was fair and reasonable, this is because the law of retrenchment in South Africa is focused strongly on preserving employment and makes it clear that a retrenchment is a no-fault dismissal.

 

What measures can employers take as an Alternative to retrenchments?

It is important to note, that any changes that alter the employment contract in terms of service requires unilateral consent, that being said, the following measures can be explored by employers as an alternative to retrenchment:

 

Short time work schedule

As businesses slow down during this period, employers can consider reducing weekly working hours, creating a “timebank” of unused working hours. These can then be used to offset the increase in working hours in subsequent periods. Employers who wish to implement the flexible work schedule need to seek the support of the employees and their union. According to the Commission for Conciliation, Mediation and Arbitration (CCMA), “short time work means a temporary reduction in the number of ordinary hours of work owing to reasons including slackness of trade, shortage of raw material, vagaries of weather, breakdown of plant machinery or buildings that are unfit for use or is in danger of becoming unfit for use”. In the circumstances of the COVID-19 pandemic, short time work could be implemented as per some of the aforementioned definitions.

 

Reduced pay

Although not ideal, a small reduction in pay across the entire workforce will not be as hard felt as losing one’s job altogether. Having to re-negotiate contracts throughout the entire company can be onerous on the employer, but a necessary evil in comparison to retrenchments.  Another option would be to freeze increases until the employer is able to reach financial stability.

 

Reduced benefits

It is correct that some benefits are required by law, others can often become inflated in order to keep workers happy and motivated. Reducing benefits gives a business the chance to rationalise their expenditure and, in tough times, employees are more likely to appreciate that necessity as opposed to retrenchment.

 

Restructuring

Restructuring refers to moving willing employees to other departments where their abilities are needed or training them to take on new duties, sometimes completely different to what they were doing in the past. Change is difficult but many workers are keen to extend their skills.

 

Eliminate overtime

Workers are often paid overtime for working after hours or weekends, however, employment contracts usually require staff to work after hours from time to time without pay, so the elimination of paid overtime could save the company costs and help to retain jobs as opposed to implementing retrenchments.

 

Halt new recruitment

Rather than reducing the existing workforce, employers can stop hiring new people. This isn’t always possible because new skills may be required to manage or execute new systems and processes, however, good employers should prefer to upskill current staff rather than hire. In addition, if a business is unable to hire personnel for the amount of work, the extra duties could be shared by current employees. It’s essential that employers alert them that this is an alternative to retrenchment and that their efforts are appreciated.

 

Temporary dismissals

Some Bargaining Council Agreements make provision for short time and/or temporary dismissal, and some employment contracts have built-in provisions in this regard. In the absence of such provisions, employers may not impose these measures unilaterally – it will have to be agreed upon.

 

What steps should an employer take to ensure lawful retrenchments?

 

Effective Consultations

Section 189 of the Labour Relations Act (LRA) requires both the employer and employee to reach consensus on all the matters relating to the retrenchment and more especially that the issue of retrenchments should be discussed with the employee within a sufficient period of time as soon as the employer contemplates possible retrenchments. The LRA further provides that, before any retrenchments take place, the employer 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.

Consensus should be reached on various factors, such as how to avoid the retrenchment if possible, and appropriate measures to mitigate the effects of the retrenchment, as well as technicalities such as which employees will be dismissed as well as the amounts of severance pay, these details should be disclosed in writing to the employees, and their unions. It is important that the employer allows for employees, bargaining councils as well as unions are given opportunities to make presentations and to give feedback. All employees should be given notice of their retrenchment after the consultation process has been completed.

 

Criteria for selection for retrenchments

The most well-known principle for retrenchments is the ‘last in-first out’ principle, (LIFO), although often applied during mass-retrenchments, it must be noted that this is not the only option for retrenchments. 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 had been agreed upon, the selection must be fair and objective.

 

Payments

Once an employee is retrenched, she is entitled to claim unemployment benefits (UIF), and the employer must pay the retrenched employee(s) the following payments:

  • Severance pay – a retrenched employee must at least be paid 1 week’s pay for each completed year of ongoing service. However, the employer must pay the retrenched employee the amount specified in any policy or his/her employment contract, if that amount is larger. It is worth noting that if an employee refuses alternative employment with the employer or other employer, s/he will not be entitled to severance pay.
  • Leave – an amount of money equal to the annual leave, or time off, that has not yet been taken by the employee must be paid out.
  • Notice pay instead of working the employee’s notice period – if the employee was employed for less than 6 months, s/he must be paid 1 weeks’ notice pay;
  • If the employee was employed for more than 6 months but less than 1 year, s/he must be paid 2 weeks’ notice pay;
  • If the employee was employed for more than 1 year, s/he must be paid 4 weeks’ notice pay.
  • Other pay – depending on the employment contract this would be any pro-rata payment of a bonus, pension and so on.

 

What remedy roes an employee have in the event of an unlawful retrenchment?

An employee that feels that they have been unfairly retrenched may refer their dispute to the Commission for Conciliation, Mediation and Arbitration (CCMA) or their respective bargaining council within 30 days from date of retrenchment. In the event that the dispute is not resolved at the CCMA, the employee may refer their dispute to the Labour Court.

The Covid-19 pandemic has created an uncertain environment across the business community, for both employers and employees alike, and it goes without saying that thousands of jobs will be lost along the way. However, it is the employer’s responsibility to ensure that the livelihoods of employees are treated with respect and that the law is upheld in the event of the unfortunate event that a company must retrench employees.

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