Businesses operate in a challenging environment where the economy and other external factors can limit their ability to remain competitive and sustainable in the labour environment. To overcome these challenges, businesses can consider a range of options, including reorganising, restructuring, and even implementing layoffs (retrenchment).
Employers must consider many aspects to limit their risk in relation to the process and payment of severance pay. It is essential that employers always follow the correct procedure as required by labor law when considering any changes to employees’ terms and conditions of employment, especially when there is a possibility that employees may lose their jobs as a result.
LAYOFFS: CONSULTATION PROCESS
Before an employer can consider any layoffs, they must follow a strict procedure as outlined in the Labour Relations Act. Consultations form an extremely important part of this process and include the following:
- Written notice: Employers must notify employees of the intended consultation by means of a written memorandum with at least 48 hours’ notice before the consultation. Each employee must sign a copy of the memorandum as proof of receipt. It is important that employees have the opportunity to prepare for the consultation and find possible alternative workable solutions. If an employee is a member of a trade union, the trade union must also be notified of the consultation.
- First consultation: Consult with the employees to discuss the content of the notice. The purpose of the consultation is for the employer to give employees an opportunity to make representations regarding the proposed layoffs. Both parties now have the opportunity to discuss alternative considerations. The employer must at all times act in good faith and keep an open mind throughout the process and give serious consideration to all alternative proposals presented. The consultation must be held with all potentially affected employees and/or the union.
- Alternatives: All alternatives presented during the consultation must be investigated and discussed. If the alternatives are not workable and there are no further alternatives, the process can be concluded. Employees affected by the layoffs must be informed of this in writing and receive the necessary documentation. The notice period begins when the employee becomes aware of the layoff.
If an employee suggests at any given moment during the consultations that they can be laid off voluntarily, the employer can accept it as such. However, if an employee chooses voluntary redundancy, they must be aware that they will not be able to claim unemployment benefits from the Unemployment Insurance Fund.
ARE YOU CONSIDERING LAYOFFS?
TAKE SPECIAL NOTE
Employers must take special note of the following:
- Do not pre-identify employees to be laid off.
- The reason for layoffs must be fair.
- All parties must be consulted with.
- Selection criteria must be fair and objective.
- The final payment of remuneration must be correctly calculated and paid out.
WHAT IS “SEVERANCE PAY”?
An employer must pay “severance pay” to an employee who is laid off. This severance package is normally equal to at least one week’s compensation for each completed year of continuous service. However, the amount can vary depending on industry-specific legal provisions.
In addition to the severance pay, the employer must also pay the following as part of the final payment of remuneration:
- Salary up to and including the last working day.
- Accumulated leave.
- Payment for notice period, even if the employee is not required to work the notice period.
Employers must comply with strict requirements set by labour legislation. Compliance is non-negotiable and requires specialist knowledge, which poses a business risk for the employer.
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