Economists have predicted that South Africa has a 45% risk of entering a recession. The lockdowns and, more recently, incessant load shedding have put many businesses in survival mode. Some employers will most probably have to embark on retrenchments to protect the job security of the majority of their workforce and the financial sustainability of their business operations. Hugo Pienaar and Abigail Butcher of law firm Cliffe Dekker Hofmeyr outline some basic lessons from the courts on the laws surrounding retrenchments.
Genuine operational reasons
Retrenchment can be embarked on only for genuine operational requirements. This means for economic, technological, structural, or similar reasons.
Employers must consider the real rationale for a retrenchment, insofar as such a rationale will determine the likelihood of disclosure of financial information.
Employers cannot use the retrenchment process to address or resolve issues relating to, for instance, poor performers or misconduct.
Consultation, not negotiation
In any restructuring exercise, employer has only a duty to consult with employees. This does not extend to a duty to negotiate – an important distinction that impacts significantly on employers’ and employees’ rights.
The most common mistake employers make is to confront unions or their employees with a fait accompli – the notice of retrenchment generally incorrectly refers to the employer’s decision to retrench and an invitation to consult about the impact of the retrenchment only.
It is necessary for unions and employees to also be afforded an opportunity to make proposals with regard to the employer’s decision to embark on a retrenchment exercise before any final decision is made on retrenchment.
Employers should not embark on a retrenchment exercise as a mechanical checklist and should enter a “good faith” consultation process with the union, where relevant, or employees. This, among other things, means that employers should carefully consider any proposals made by the unions or employees, and if they do not accept these, provide reasons for the rejection.
Where employers embark on a large-scale retrenchment, the process can be better managed and regulated when a facilitator has been appointed to oversee the consultation process.
Disclosure of financial information
If any proposed retrenchment is based on economic reasons, there is a likelihood that disclosure of financial information will be required – albeit in a confidentially protected environment, to the extent possible.
Where employers are required to disclose financial information, they should implement the necessary measures to protect the confidentiality of this information.
Any proposed retrenchments based on other grounds, such as the need to restructure, will ordinarily not require the disclosure of financial information, but may require the disclosure of other information relating to an employer’s operations.
Selection criteria
The next risk employers often face regards the selection criteria used to determine which employees are identified for retrenchment. Employers, in the absence of sound legal advice, often use a subjective selection criterion that can create further litigation and unnecessary workplace conflict.
It is important that the selection criterion is not limited to “Lifo” (last in, first out), and it is agreed and/or applied objectively. An objective criterion may be used to retain the most suitably qualified employees, particularly at a more senior level.
Severance pay
Employers are obliged to pay the minimum severance pay (one week’s remuneration for every completed year of service) or the minimum set out in a particular collective agreement. The practice is to pay more when the business is not financially distressed, but this is not a requirement.
In this regard, it is important to note that the calculation of the severance pay is based on an employee’s remuneration, which is the “cost to company” package of an employee.
Training
Employers are also encouraged, but not mandated, to consider offering retrenched employees training at designated or registered training institutions. This will help retrenched employees to acquire further skills after their retrenchment.
Disclaimer: This article is published purely for informational purposes and does not constitute legal advice.
