In This Issue: Retrenchments
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Everyone has felt the pinch of the economic crisis worldwide. This means an increase in unemployment and poverty. In South Africa, many employers are considering retrenchments as a solution to this crisis.
In this article we will look at what the employers and employee should do and expect when considering retrenchments.
If an employer intends terminating the services of the employees on grounds of financial or business operational reasons (no fault termination) he must comply with exact prescribed requirements. Compliance with these requirements is important so as to ensure that all possible alternatives to dismissal are looked at and that retrenched employees are treated fairly.
The term “operational requirements” is defined as “requirements based on the economic, technological, structural or similar needs of an employer”.
An employee has a fundamental right not to be unfairly dismissed by his employer on account of operational requirements. Two basic requirements must be complied with before a dismissal based on operational reasons will be regarded as fair. Those are:
(a) One of the requirements that must be complied with, for retrenchment to be fair is that it must be considerably fair towards the employees affected. Considerable fairness with regard to retrenchment means that a valid and a fair reason must exist for the termination of the employment of an employee on account of operational reasons. That is the retrenchment must be based on:
- economic or financial reasons: that is those reasons relating to the financial management of the enterprise;
- technological reasons: that is those reasons that “refer to the introduction of new technology which affects work relationships either by making existing jobs redundant or by requiring employees to adapt to the new technology or a consequential restructuring of the workplace”;
- structural reasons: that is those reasons that “relate to the redundancy of posts consequent to a restructuring of the employer’s enterprise”; and similar needs.
The employer is not entitled to take the final decision to retrench before consulting with the trade unions and employees involved and considering their counterproposals and representations. The implication is that, only after the consultation process is exhausted will an employer be entitled unilaterally to decide whether to implement his retrenchment proposals or not.
(b) The second requirement for retrenchment is the procedural fairness. This means that the correct procedure must be followed before the employer can proceed to retrench.
Unless the employees request collective meeting, meetings should be held individually with all employees that could be affected by the proposed retrenchment. This should take place as soon as the employer considers retrenchment. The consultation must take place:
- in terms of the collective agreement;
- with work forum;
- with a registered trade union whose members are likely to be affected; or
- with employee who is likely to be affected.
All parties are obliged to enter into a meaningful interaction or joint consensus seeking process and to attempt to reach consensus on the following:
- avoiding the dismissal (for example considering other alternatives like adjusting working hours, eliminating temporary labour, eliminating overtime, offering early retirement);
- minimizing number of dismissals;
- the timing of dismissals;
- ways to lessen the effects of the retrenchment for those being retrenched;
- the method of selecting the employees to be dismissed;
- the payment of severance pay
Employees are entitled to the minutes of all meetings.
When considering retrenchments, the employer must issue letters to all employees in the affected unit advising them of the pending retrenchment and the date when consultations will start. Decisions to retrench cannot be made prior to the consultation process taking place.
The employer has to disclose the following information in writing:
- the reasons for retrenchment;
- alternatives considered to retrenchment and why those alternatives were rejected;
- the number of employees likely to be affected and their various job categories;
- proposed method of selection criteria;
- the period during which, the dismissals are likely to take effect;
- severance pay proposed
- the assistance that the employer will be offering ( allowing employees to attend interviews for possible jobs in other places);
- possibility of future re-employment and issues around re-employment.
If the parties cannot reach an agreement with regards to the selection criteria a fair and objective criteria must be followed. In most cases the Last In First Out (LIFO) method is used at the time of retrenchment. The employer can also use their own criteria. Employees with key established skill or those who occupy a specific specialized position may be retained, and the poor performing employees may be taken into consideration.
If the employer considers retrenchment he must at least dismiss:
(i) 10 employees, if the employer employs up to 200 employees;
(ii) 20 employees, if the employer employs more than 200, but not more than 300, employees;
(iii) 30 employees, if the employer employs more than 300, but not more than 400, employees;
(iv) 40 employees, if the employer employs more than 400, but not more than 500, employees; or
(v) 50 employees, if the employer employs more than 500 employees
After the consultation process had been done and parties have not reached an agreement, the employer is entitled to give notice of termination of contracts of employment.
The employees in reaction to that can either give notice to strike or they can refer a dispute on the reason for the dismissal to the labour court for adjudication
If any party wishes to challenge the fairness of a consultation process, it may challenge the outcome in the labour court. Any application in this regard must be brought within 30 days of the issuing of a notice of termination of employment.
If an employee wishes to challenge the lawfulness of a retrenchment, he should refer the matter to the CCMA for conciliation.