Restructuring: what to consider/what it entails

Businesses operate in a challenging environment where the economic climate and other external forces can leave a business with little choice but restructuring: realign, restructure and reorganise to become more competitive or to maintain an existing position in the market.  Operational changes can create opportunities for both the business and employees with regards to skill and personal growth, leading to better and more efficient use of human resources and the implementation of better procedures, ultimately improving efficiency and profitability.

What is restructuring?

Restructuring is the act of reorganising a business’s structures (legal, ownership, operational or other structures) for the purpose of making it more profitable or better organised for its present requirements.

When does restructuring take place?

Restructuring will most likely take place in cases of operational changes, for example a change in structure (ownership, management, or departments), goals and vision, financial position (the economy, amended legislation impacting on the cost of doing business, entry of competitors into the market, the minimum wage, recent drought, etc.) and technology (progress in terms of new techniques and methods of completing tasks quicker, as well as technological inventions).

Follow the correct procedure

Section 189 of the Labour Relations Act specifies a strict procedure that employers must follow when considering restructuring and/or retrenchment.  Employers must take care to follow this procedure and avoid making any unilateral changes to the employment contract.

Restructuring is a formal consultation process that allows both parties to engage in discussions to consider other alternatives, minimise changes, establish timeframes and reduce the negative impact of restructuring.  The employer should in all good faith keep an open mind throughout the process and seriously consider proposals put forward by employees.  Meetings should be held with all possibly affected employees as well as the trade union where applicable.

Employers should also take note of training as a means to avoid retrenchment.  Where an existing or new position requires a higher performance level or new skills, the employer is obliged to consider any additional training that may assist the employee in achieving the level of performance required.

Communication is key

Change is difficult and can leave employees anxious.  We advise employers to be open and clear with regards to why changes are needed and to explain the business’s needs and goals, as well as make regular announcements to all employees in terms of progress made.  Restructuring is more likely to be successful when managers understand the fundamental strategic problem or opportunity the business faces.


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LWO Regsadviseur - LWO Legal Advisor

LWO Regsadviseur - LWO Legal Advisor

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