THERE is a whole host of reasons why employers retrench. While the most common reason will be some form of financial stress, the reason for retrenchment could be entirely unrelated to financial difficulty. It could be said that employers either retrench to lose less money or to make more money. Other grounds that could warrant retrenchment include automation, which replaces manual jobs, and simple organisational restructuring, whereby the employer concludes that the business could continue to function, and even flourish.
It is also important to remember that retrenchment, referred to as an operational requirements dismissal in the Labour Relations Act (LRA), is one of the three categories of dismissal in our law. The other two are misconduct and incapacity. Essentially, it is helpful to understand that there are three steps to be followed to ensure compliance with the procedure to be followed, as outlined in sections 189 and 189A in the LRA.
In short, the three steps are:notify the employee of the proposed retrenchment in writing, consult the employee before finalising any retrenchment decision and complete the procedure by deciding if the retrenchment will be confirmed as proposed.
So when must the requirements of Section 189 of the LRA commence?
Well, quite simply, an employer must issue a potential retrenchee a notice of proposed retrenchment once the retrenchment is contemplated by the employer. In practice, this means that the process must start once the retrenchment is the most likely or most preferred. Employees are entitled to be represented during the consultation process by any registered trade union whose members are likely to be affected by the proposed retrenchments, a committee appointed to represent potential retrenches or a colleague. Both the employer and the potential retrenchee are equally obligated to participate in the consultation process with a view to attempting to seek consensus on possible ways of avoiding the proposed retrenchment, delay the timing of the proposed retrenchment or ways to mitigate the adverse effects of the retrenchment. In addition, and importantly, the employer and the employee must try to seek consensus on the selection criteria to be adopted in the selection of the employees to be dismissed.
If no agreement is reached on the selection criteria, fair and objective criteria should be adopted. For example, This means that subjective criteria such as the employee’s disciplinary records cannot be used to select employees for retrenchment. That is an important compliance issue, as was held in Singh v Mondi Paper (2000) 4 BLLR 446. It said: “The selection process must rank as the most fundamental issue for scrutiny in order to determine whether the dismissal was fair or not.” “Last in, first out” is the most widely recognised fair and objective selection criterion in retrenchment.
However, selection may be based on the need for skills retention, in which case last in, first out is not a consideration. The severance pay is also a matter for consultation. Employers are required to pay a retrenched employee no less than one week’s remuneration for each completed year of service. They can pay more, but they can’t pay less, without an exemption to do so. It is not uncommon for employers to agree to pay more than the one week’s remuneration for each completed year of service. However, an employer would typically not do so without ensuring, in return, that the employee agrees to sign a retrenchment agreement, thereby ensuring that the employee cannot subsequently invoke unfair retrenchment.
Another factor to consider in most retrenchment scenarios is the prospect of voluntary retrenchment. Before selecting employees for potential retrenchment, an employer may open a window period within which employees may volunteer to be retrenched. It may sound unlikely that an employee would volunteer to be retrenched. However, it does occur. For example, an employee may have been planning to resign or been saving to start their own business venture, in which case the severance pay will come in handy. When such a window period for voluntary retrenchments is opened, the employer would always reserve their right to accept or reject, applications, based on operational requirements and the need to retain certain skills.
Finally, Section 189A of the LRA is to be complied with in the case of more large-scale retrenchments, and becomes applicable, in certain circumstances, in retrenchments with employers with more than 50 employees.
Tony Healy is a labour law expert at labour law consultancy Tony Healy & Associates. Call 0861 115 375 or visit www.tonyhealy.co.za