Dealing with retrenchment the right way...
This week we sat down with Hayley Mackay to talk about the biggest issue facing employers and employees at the moment - retrenchment.
Hayley and I have known each other for 25 years. We used to chase each other around our school hall when we were younger, and then went our separate ways during university to both study law. We have since chased each other across the country ever since, having a few great years in Johannesburg as young lawyers.
Hayley specialised in labour law and we have often shared discussions over multiple cups of tea discussing our own issues in our careers, and some horrific stories about clients we have represented in labour matters. She is the person I have on speed dial when anything employment law is related and we’re so grateful that she sat down with us before jetting off to the UK to study again.
Covid-19 has changed the way we all work - probably forever. Companies are realising that this economic downturn means a very uncertain future, and many have decided to restructure their businesses to mitigate the risk of closing completely by reducing the working hours of some employees and retrenching others. The less fortunate have had to retrench all their employees as they close their doors forever. Even individuals have “let go” of domestic workers during this time.
This has resulted in a lot of anxiety for both employers and employees, so we wanted to debunk some of the myths around retrenchment and provide some guidance to both employers and employees on their rights during the process.
Our key takeaways are:
When can retrenchment happen?
Any reason that the company deems necessary, which is often labelled “operational requirements”.
So retrenchment doesn’t only happen when the company is in financial distress.
It can also be where quicker systems require less people, usually involving automation.
Basically - it’s whenever a company wants to increase profits and reduce losses.
No matter what the reason is for retrenchment, the employer must provide fair reasons for how they came to the decision of retrenchment, and follow a fair procedure when making these decisions.
What is the fair procedure to follow?
The Labour Relations Act sets out a very specific process to be followed by employers.
The first step is to issue a notice to employees indicating that the business is considering retrenching employees.
A business may never unilaterally retrench.
The notice must be followed by a consultation process where employees can put forward ideas to avoid retrenchment.
The consultation does not have to result in consensus with the employees. The ultimate decision lies with the employer.
What is the difference between a retrenchment and a voluntary severance package (VSP)?
A VSP does not have to be linked to retrenchment or restructuring.
It also doesn't have to be offered to everyone.
It usually involves being made an offer of a financial payout you might receive, which is usually more than you would receive than if you had to be retrenched.
This is useful for employers that are trying to avoid going through the formal process of retrenchment.
Also referred to as a mutual termination agreement, so employees can (and are encouraged) to negotiate the terms of the contract and get legal advice.
What are your rights if the incorrect process has been followed?
When the court has to decide if a retrenchment was fair, it considers if there was a valid reason and if the retrenchment was unavoidable.
If an employee feels that an unfair process has been followed, they can approach the Commission for Conciliation, Mediation and Arbitration (“CCMA”), or a bargaining council.
The employee must refer a dispute to the CCMA or bargaining council within 30 days from date of retrenchment.
If the dispute is not resolved at conciliation, the employee can escalate the dispute to the Labour Court.
An employee can ask that the employer reinstates/remploys them (with or without back pay), or pays compensation to them (which is capped at 12 months pay).
The employee may only ask for a resolution that is practical. In other ways, the employee cannot ask to be reinstated if the company has closed.
It’s important to bear in mind that retrenchment must always be considered as a last resort. If and when that decision is made, the correct process needs to be followed as taking steps to reduce costs in the retrenchment process may end up ending the company much more down the line in disputes with employees.
Here are some useful links:
Labour Relations Act - https://www.gov.za/sites/default/files/gcis_document/201409/act66-1995labourrelations.pdf
Basic Conditions of Employment Act -
https://www.gov.za/sites/default/files/gcis_document/201409/a75-97.pdf
CCMA -
As always, we're here to help if you come unstuck.