Statistics SA recently published its Quarterly Labour Force Survey 1, which reported that South Africa’s unemployment rate currently sits at an alarming figure of 27,6%. This statistic is congruent to the current economic climate that many employers face and there are various reasons that have contributed to the high unemployment rate. One reason is the increased number of retrenchments that many companies have recently undergone, from small employers such as micro retailers to large employers such as JSE listed banking institutions. Employers’ reasons for the decision to downsize may vary, whether it is due to economic needs, structural needs, technological needs, similar needs or the liquidation of a business.
Legal Principles
Section 189 of the Labour Relations Act2, with reference to Section 189A, deals with dismissals based on operational requirements. Section 189(2)(a)(i) states that during the consultation process between the employer and the employee/s, there should be meaningful engagement on whether there are appropriate measures to try and avoid the dismissals. Section 189(3)(b) also states that an employer must disclose in its written notice to employees, the alternatives that the employer has considered before proposing the dismissals and the reason for rejecting each of the alternatives. This requirement is often not given sufficient consideration during the consultation process and can lead to an employer making a pre-mature decision to retrench employees or worse, an unwarranted decision to retrench employees.
There are alternative measures that are available to employers that if adopted, ensure that the employer has in fact tried to avoid any imminent dismissals due to operational requirements. These measures do often result in less favourable conditions of employment for employees, however, they can be justified where the intention is to avoid retrenchment. In the Supreme Court of Appeal case of NUMSA and Others v Fry’s Metals (Pty) Ltd [2005] 3 All SA 318 (SCA), the court focused on the notion that it is better offer employees a less favourable condition of employment with the purpose of retaining employment, than to terminate their employment due to some employees not willing to accept a less favourable condition of employment. Below are some of the alternative measures available to employers:
Alternative Measures
Short Time – Implementing a system of short time in the workplace allows for the employer to place employees on a reduced work schedule, due to circumstances not within the control of the employer, whereby staff will only be remunerated for their actual hours worked. Since short time is seen as a variation of an employee’s working hours, it is therefore a change in the employee’s conditions of employment, so all affected employees must be consulted with prior to short time being implemented. It is advisable that a short time roster is created beforehand and that the roster is fair and consistently applied to all affected employees.
Defer or cancel the payment of bonuses and benefits – In most sectors in South Africa, the payment of bonuses and benefits are discretionary. Since they are not a mandatory condition of employment, employers are therefore advised to consider deferring or cancelling the paying bonuses and benefits to employees for the applicable financial period, in order to alleviate the payroll. It is advisable that all affected employees are given adequate notice of the employer’s intention to defer or cancel the bonuses and benefits for the applicable period.
Conservative approach to granting salary/wage increases – This can be a difficult measure to implement since the cost of living and inflation in South Africa, does create a certain expectation for employees to receive a salary increase per annum. Nonetheless, employers are not obligated to grant salary increases, unless there is a Collective Agreement or Sectoral Determination which mandates this. If an undertaking is made to grant a salary increase, it may be advisable for employers to consider a more conservative approach when doing so, by perhaps limiting the salary/wage increase amount to the national inflation rate or the like.
Early retirement – An employer should consider offering employees who are eligible or soon approaching the agreed retirement age, the option to take early retirement. This does often depend on whether there are existing retirement benefits available to employees and whether it would not be financially detrimental to the employer to offer this to employees. Adopting alternative measures in order to avoid dismissals based on operational requirements, is beneficial to employers since the decision to retrench in itself, has legal consequences. One such consequence is when an employer retrenches an employee, the dismissed employee’s position cannot be filled for a period of at least 12 months post retrenchment. Bearing in mind that employers are often restricted in terms of the selection criterion when deciding who to retrench, this may cause a strain on the operations of the business especially if such position or post is vital to the business operations.
Another consequence is a financial one in that the termination of an employee stemming from a retrenchment, requires an employer to pay such employee a severance package. Unless a Collective Agreement provides otherwise, the Basic Conditions of Employment Act (the BCEA) states that an employee is entitled to severance pay equal to at least one week’s remuneration for each completed year of continuous service with that employer.3 However, where an employer has offered an employee a reasonable option with the purpose of avoiding a dismissal based on operational requirements and such employee refuses the offer, Section 41(4) of the BCEA relieves an employer of the duty to pay severance pay in circumstances where the employee who is dismissed for operational requirements, unreasonably refuses to accept the employer’s offer of alternative employment.
Conclusion
Employers contemplating retrenchments in the workplace should align themselves with the holistic view that the decision to retrench should be the End Game, rather than your first move. Employers are therefore urged to earnestly consider alternative measures, in order to avoid dismissals based on operational requirements. Not only is it beneficial from an operational perspective, but it is also beneficial from a financial perspective.
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