Retrenchment is always challenging, but can be the only solution left. All employers have two goals: to make a profit and be sustainable. Employers must consistently evaluate all factors that can influence the long term success of the business in order to create a cost-effective environment enabling the business to stay competitive within the market.
Labour law specifies a very strict procedure which must be followed when changing the terms and conditions of employment as this cannot be done unilaterally.
Substantive fairness – for what reasons can the employer retrench employees?
This refers to when a business is no longer in the financial position to employ all current employees any longer due to a variety of reasons that can include:
- the economy;
- a drought;
- amended legislation impacting on the cost of doing business;
- entry of competitors into the market; etc.
Progress in a sector often introduces new technology that can result in making existing jobs redundant.
- new techniques and methods of completing tasks quicker;
- technological inventions;
- new machinery and mechanisation
When a business adjusts to a changing environment (whether due to challenges or progress), restructuring takes place regarding changes in the workforce, which can lead to positions becoming redundant. Structural changes are therefore reflected in the organogram or organisational chart of the business. Structural changes can also follow when a business makes strategic changes in terms of its vision and goals.
Procedural fairness – following the right procedure
If after careful consideration of all circumstances, the employer decides to proceed with retrenchment as a last option, employees must be notified by means of a written memorandum. This must contain specific information as per the Labour Relations Act (LRA), giving employees at least 48 hours’ notice enabling them to prepare for the consultation with regards to other workable solutions and general input. If an employee is a member of a trade union, the trade union should also be notified.
The consultation allows both parties to engage in discussions to consider alternatives to retrenchment, minimise retrenchments, establish time frames and reduce the negative impact of retrenchment. 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.
Implementation after consensus
The LRA does not define the period over which consultations should extend, but parties must keep consulting and engage in discussions until consensus is reached. If no alternative to retrenchment was identified and the employer has no other option but to proceed with the retrenchment process, retrenched employees are entitled to the following payments where applicable:
- severance pay;
- notice pay;
- outstanding leave;
- and any other outstanding amount the employee is entitled to
Most cases referred to the Commission for Conciliation, Mediation and Arbitration (CCMA) pertain to unfair dismissal. Employees are more informed about their rights and the procedures to follow when they feel they have been wronged by the employer. In general arbitration awards in favour of the employee are due to the lack of following correct procedure on the employer’s behalf. We strongly advise employers to implement clear rules in the workplace and follow correct procedures with regards to all labour matters, especially dismissal, retrenchment and general discipline in the workplace, by acting proactively.
Contact the LWO for any assistance with restructuring and/or retrenchment.
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