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Retrenchments

                   

Employers must be very careful with retrenchments - otherwise you could end up in the Labour Court, with a judgment stating that you must reinstate the retrenched employees, or pay them hefty compensation, and in addition pay all their legal costs. The most common element that lands employers in the Labour Court seems to be the reason for retrenchments. Procedurally, retrenchments are not a problem - the procedure is clearly laid down step-by-step in section 189 and 189A of the Labour Relations Act.

 

Provided that the employer follows that procedure - even if it may seem a bit onerous or time consuming to do so - the employer would not be found lacking on procedural fairness. The reason (substantive fairness) for retrenchments is another matter altogether, and is  extremely important . It must be a reason based on the employer's operational requirements . It must be a reason that is fair, lawful, reasonable under the circumstances, justifiable (provable) and based on sound business rationale.

 

Employers who face the Labour Court are those who did not have a proper or justifiable  reason for retrenching. Employers must give very careful thought and consideration to the reasons for the retrenchment/s. As recently as October last year ( refer Aiery & other v GE Security C218/06 LC) a company embarked on a restructuring exercise. Employees were instructed to reapply for jobs within the new structure - they could apply for as many posts as they wished to. Three senior managers did not follow this procedure  - their viewpoint was that the company should have consulted in more depth than it had.

 

They were not reappointed in any post and were retrenched. The three engineers referred their complaint to the Labour Court. The Labour Court agreed that the company was entitled to proceed with its plan for filling posts with suitably qualified employees who had applied for the posts. However, the Labour Court ruled that the substantive unfairness arose because the company did not reappoint the three engineers to their existing posts within the new structure, and although the 3 did not apply for any posts at all, the Labour Court felt that the employer should still have considered them for other posts for which they might have been suitable.

 

In other words, although it is common practice among employers to say to employees "you must re-apply for your job (or for another post within the organization ) but if your application is unsuccessful you will be retrenched ," the Labour Court does not agree with this approach  - at least they did not agree with it in the case mentioned. It seems to be that the intention of the Labour Court in this judgment is to say that employers must consider whether employees may be suitably qualified for a post other than those that they applied for, or even other than those that they did not apply for, or consider whether they should be kept on within the new structure in their present posts, even if they did not re-apply for their present posts.

 

It is well known that some unscrupulous employers (fortunately they are in the minority) allege that they are restructuring, they then instruct employees "to reapply for your job and if your application is not successful you will be retrenched." These unscrupulous employers use this approach purely as a disguise to dispose of poorly performing employees, or employees with bad attendance records, bad disciplinary records and so on.

 

The truth is that it was never a restructuring exercise in the first place - it was merely an exercise to dispose of certain undesirable employees by taking what the employer considered to be "the easy way out." This is one of the reasons why the Labour Court submit that even if an employee does not apply for his own post or for another post within the organization, he must still be considered for placement in another post or retention in his existing post.

 

In another case, the employer maintained that the reason for retrenching a particular employee was linked to its financial losses over the past recent years. They could not, however, prove to the satisfaction of the Labour Court that their financial losses justified retrenching this employee - the retrenchment was ruled to be unfair. Employers must be able to show that the need to retrench is justified by a sound and objective business rationale.

 

If an employer is retrenching for financial reasons - and this is usually the case - the employer must be able to actually prove that there is a connection between his financial constraints and the need to retrench. Employers must also be prepared to show the basis on which certain employees were selected for retrenchment and others not. In other words, employers must be able to show what savings would be achieved by retrenching the selected employees and so on.

 

When it comes to retrenchment, employers are strongly advised to seek professional assistance. Damage control never works - do it to correctly from the beginning  - and you will not have a need to introduce damage control.

 

For further information, contact 

Ivan Israelstam


Already in 2009 we have received dozens of calls from employers who have retrenched employees and are being taken to the CCMA, bargaining council or Labour Court. Because the current economic downturn has only just begun, retrenchments are likely to spiral over the next year and beyond.

Exacerbating the effect of the economic downturn is the rampant culture of crime that our government only talks about addressing. In contrast to this "talk" of addressing crime we have excessively high levels of violent crime and corruption. These facts deter those foreign investors who might have considered bringing labour intensive projects to South Africa. In the light of increasing workforce cut-backs it is now more important than ever before that employers become aware of the plethora of myths that relate to retrenchments.

Many employers operate erroneously and dangerously according to the following myths:

  • Retrenchments are the only solution to the employer's financial problems
  • Employers are allowed to retrench merely because profits have dropped slightly or are expected to drop slightly
  • Restructuring exercises automatically allow the employer to retrench
  • When new technology is introduced into the workplace the employer can immediately retrench those employees who have not been trained in the use of the new technology
  • The employer has the right to choose whatever criteria it prefers when deciding who to retrench
  • As long as the employer has good reasons it can go ahead and retrench whenever it likes
  • Because retrenchments need to be implemented urgently, the employer is not obliged to follow retrenchment procedures
  • The employer is not obliged to find out whether the employees concerned belong to a trade union before beginning retrenchment consultations
  • Employers only have to consult on the issue of the amount of the retrenchment package
  • When a company is bought over, or two entities merge, the resulting rationalisation justifies the retrenchment of superfluous employees
  • Employers are entitled to decide to retrench employees before consulting with them on reasons why the retrenchments should not take place
  • Retrenchment is a golden opportunity to get rid of poor performers, bad eggs, trouble-makers, pregnant women, elderly employees, members of unfavoured race groups, religious or tribal origins and misconduct.

 

In the case of Janse Van Rensburg vs Super Group Trading (Pty) Ltd (2009, 3 BLLR 201), the employee was retrenched after the employer found itself in financial difficulties. The employer alleged that the employee had been retrenched because of restructuring.
 
However, the Labour Court found that:

  • The employer had chosen the employee for retrenchment before consulting with him on the matter
  • The employer's real reason for selecting the employee for retrenchment was because it had received complaints from clients about his negative attitude, his lack of interpersonal skills, his disciplinary record and other allegations of misconduct

 
The retrenchment was procedurally and substantively unfair and the employer was ordered to pay the employee the equivalent of 12 months' remuneration in compensation. Having been made aware of the above 12 myths and of the outcome of the Janse Van Rensburg case cited above employers need to:

  • Train their managements as to the do's and don'ts of retrenchment
  • Use a reputable labour law expert to advise them before embarking on retrenchments, and to carry out the necessary management training.
 

Ivan Israelstam is the chief executive of Labour Law Management Consulting. Contact him at 011 888 7944 or   

Our appreciation to Ivan and The Star newspaper for permission to publish this article.

Johanette Rheeder

 

It is estimated that more than one hundred thousand employees have been affected during 2008 by the decline in the economy and the spin off on the world wide recession, either by being laid off or being hit by interim measures such as short time, extended time off without pay, cuts in overtime, no bonuses being paid or little or no increase in salaries. Many smaller employers are reducing numbers and owners and managers are going back to the drawing board to streamline businesses.

  

The prediction for 2009 is even grimmer with a projected incline of 3% in the unemployment rate and job losses being estimated to be between two hundred and three hundred thousand, the worst hit industries being the automotive, mining and clothing and textiles sectors.

 

Retrenchment is nothing but a dismissal for operational reasons, which can include a variety of reasons such as the financial decline of a business, an employer deciding to increase profits of his business or a part thereof, the introduction of new technology that results in a decline in positions or structural changes such as the transfer of a part of the business of the employer. Retrenchment is also known as a "no fault dismissal". Due to the fact that it is in essence still a dismissal, the requirement of "fair labour practices" still applies.

           

Fair labour practices are the constitutional right of every employee. The Constitution, by way of section 23(1) (a), specifically declares that every person has a fundamental right to fair labour practices. In the context of retrenchment, expression is given to this in the Labour Relations Act by affording an employee the right not to be unfairly dismissed and an employer the right to dismiss an employee for a fair reason based on the employer's operational requirements and in accordance with a fair procedure. 

       

The Labour Relations Act 66 of 1995 (LRA) codifies the requirements for retrenchments by way of section 189 and 189A. Employers cannot achieve a fair retrenchment process without following the requirements of the LRA as it underlines the constitutional right to fairness. Section 189 therefore regulates the exercise of the competing fundamental rights of an employee not to be unfairly dismissed and that of an employer to dismiss for operational reasons.

         

Because retrenchment is a "no fault" dismissal and because of its human cost, the LRA places particular obligations on an employer, most of which are directed toward ensuring that all possible alternatives to dismissal are explored and that the employees to be dismissed are treated fairly.

   

Section 189 and 189A places a high value on consultations, in fact, if the employer fails to consult with employees on retrenchment, it will be an unfair retrenchment and the employer will face re-instatement or a compensation order. The purpose of consultation is to enable the parties, in the form of a joint problem-solving exercise, to strive for consensus, if that is possible.                                                                                                                                                              

It is required of the parties to attempt to reach consensus on, amongst other things, appropriate measures to avoid dismissals. In order for this to be effective, the consultation process must commence as soon as a reduction of the workforce, through retrenchments or redundancies, is contemplated by the employer, so that possible alternatives can be explored. The employer should, in all good faith, keep an open mind throughout and seriously consider alternative proposals put forward. If this is not done and the employer made the decision before the process commenced, it will render the retrenchment substantively unfair.

          

The list of measures to avoid dismissals is vast and dependent on the employer and the industry the employer is operating in. Examples thereof are:

  • measures to increase productivity;·              
  • short time;·              
  • rationalizing costs and expenditure;·              
  • increase or decrease in shifts and length of shifts;·              
  • decreasing the number of contractors or casual labourers;·              
  • using employees to perform the functions performed by contractors or casual labourers·              
  • outsourcing a function to its own staff after the employees have formed themselves into a company; ·              
  • skills development to enable employees to move into different positions;·               
  • stopping overtime or Sunday work·              
  • bumping·              
  • reducing wages (by agreement)·              
  • early retirement offers or schemes·              
  • moratoriums on hiring new employees·              
  • gradual reduction of workforce by way of natural turnover·              
  • extended unpaid leave or temporary lay-off

                            

If one or more employees are to be selected for dismissal from a number of employees, the LRA requires that the criteria for their selection must be either agreed with the consulting parties or, if no criteria have been agreed, be fair and objective criteria. An example of fair selection criteria is "LIFO", which means that the last employee in, therefore the one with the least amount of service, is the first employee to be chosen for retrenchment. This criterion is based on years of service and not on any subjective means such as the performance or disciplinary record of the employee, which will be unfair.

    

Employees dismissed for reasons based on the employer's operational requirements are entitled to severance pay of at least one week's remuneration for each completed year of continuous service with the employer, unless the employer is exempted from paying severance.

        

For more information contact Johanette Rheeder on  

Advocate Estelle Botha

 

Section 189 of the LRA, as amended, deals with the termination of the employment contract for operational requirements. The section prescribes a consultation process to be followed. In 2002 the LRA was amended and introduced section 191(12). This section gives a single employee who was retrenched, a choice whether to refer a dispute to the CCMA for arbitration, or the Labour Court for adjudication.

 

The section states : "If an employee is dismissed by reason of the employer's operational requirements following a consultation procedure in terms of section 189 that applied to that employee only, the employee may elect to refer the dispute either to arbitration or to the Labour Court."

 

From the wording it is clear that section 191(12) applies where a single employee was consulted and subsequently retrenched. It is not applicable where there was more than one employee retrenched. If more than one employee was retrenched, the CCMA has no jurisdiction – those employees must refer the dispute to the Labour Court. If a single employee was retrenched he/she has a choice to either refer the dispute to the Labour Court for adjudication or to the CCMA for arbitration.

 

The Labour Court had an opportunity to interpret section 191(12) in an unreported matter of Rand water vs Bracks & others JR1965/05. The court considered the section in the light of the explanatory memorandum of 2002 which stated that the CCMA was to deal with relatively simple cases of individuals who may not be able to afford the cost of labour court litigation.

 

The court makes an observation that a matter does not become complex merely because of the number of employees retrenched, but the facts of a matter determine its complexity. The court regards the substantive issues as possibly less complex and therefore the CCMA should deal with that. The court interprets the section to mean that the employee may only refer such a dispute to the CCMA if the substantive issues are in dispute only.

 

Because the section says; "following a consultation procedure in terms of section 189…" the court said that it was the intention of the legislator that section 191(12) only allows a single employee to refer a dispute on substantive issues to the CCMA. Any dispute on the procedure must be referred to the Labour Court for adjudication. In the light of this judgement it seems to be safer to refer all retrenchment disputes to the Labour Court after conciliation failed.

 

For more information contact    

Ivan Israelstam

When presiding over unfair retrenchment cases, our courts have started to look much more closely than before at the circumstances of each case.

They look at whether there could have been some way of saving jobs and whether the employer tried hard enough to save jobs.

For example, in the case of FAWU v SA Breweries Ltd (Contemporary Labour Law Vol 14 No 2 September 2004) the employer retrenched employees after a major reorganisation in the way that work was done.

This change in the organisation required that production employees would need to be able to perform a much wider variety of work than what they had previously been involved in.

In order to establish whether these employees had the required skills to work in the changed jobs the employer applied, among others, the adult basic education and training (Abet) test.

That is, in the absence of other suitable educational qualifications, the employer tested the employees to assess their levels of at Adult Basic Education and Training (Abet).

Certain employees who failed these tests were selected for retrenchment.

The Labour Court found that:

  • Retrenchment has a "deleterious impact on the life of workers and their families" and can be seen as a "death penalty".
  • Therefore an employer contemplating retrenchments must be able to prove that dismissals of this type were being implemented as "a last resort".
  • And if there was a viable alternative to retrenchments the employer is obliged to implement it.
  • SAB acted unilaterally in applying the Abet levels.
  • The court found that these Abet levels were not a valid test of the retrenchees' ability to work in the newly created jobs.

This is because Abet measures more general abilities, specifically reading and writing, rather than the actual measurable skills required for the specific jobs in question.

The employees' experience should also be taken into account in assessing their suitability for the jobs.

  • SAB did not argue that it did not have the funds to devise a valid and appropriate test to assess the suitability of the employees for the newly created positions.

The employer therefore could have and should have had such appropriate tests designed.

  • The retrenchees had long service
  • Due to apartheid, the employees' only schooling option had been "Bantu education".
  • SAB had not taken adequate steps to assist the employees to obtain the desired Abet skills levels.
  • SAB had been inflexible as regards the consultation process.
  • The retrenchment of these employees was unfair both procedurally and substantively (ie it was for unfair reasons).

In the case of CWIU and Others vs Latex Surgical Products (Pty) Ltd (2006, 2 BLLR 142) the employer gave notice to the trade union that it proposed the possible retrenchment of 33 employees.

After consultation, the employer implemented retrenchments for reason of its financial circumstances.

In deciding on which employees were to be retrenched, the employer rated all the employees on six criteria and chose those whose ratings were the lowest.

The employees who were retrenched lodged a dispute with the Labour Court, which found that the retrenchments were fair.

The union went to the Labour Appeal Court which found that:

  • After the retrenchments the employer had hired a large number of casual workers.

This persuaded the court that there had not been a good reason to retrench the employees as there was clearly work for them to do.

  • The employer had neither shown how it had applied the criteria for choosing who to retrench nor that it had applied these criteria objectively.

The retrenchments were therefore declared to be unfair and those employees who had not found other jobs were reinstated with 12 months' back pay.

Employers need to learn form the above cases that:

  • The law keeps changing and all employers need to keep up with these changes.
  • Retrenching employees and replacing them with others is unacceptable.
  • Employers must use retrenchment criteria that can be measured objectively and must be able to show that such objective measurements were in fact made and properly used.
  • Retrenching employees is becoming harder and harder.
  • The biggest, most powerful and most experienced of employers can lose in the Labour Court.

Therefore, no effort must be spared in ensuring legal compliance.

  • The need to apply labour-law expertise is not a luxury but a basic necessity
  • Such expertise must be applied before a retrenchment decision is made.

Ivan Israelstam is chief executive of Labour Law Management Consulting. He can be contacted on 011-888-7944 or 082-852-2973, or on e-mail:

Our appreciation to Ivan and The Star newspaper for permission to publish this article

 

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