Labour dynamics: Retrenchment as a result of COVID-19

05 July 2021 08:45 by Kayla Pashiou

The general requirements for a fair dismissal based on an employer's operational requirements are to be found in section 189 of the LRA. However, section 189A provides for specific procedures and remedies for instances of large-scale retrenchment. The similarities and differences between these two sections therefore need to be considered.

Written by Kayla Pashiou, Senior Associate Christodoulou & Mavrikis Inc for LexisNexis South Africa.

With the advent of Covid-19 more than a year ago, the financial strain on companies has forced many to restructure their businesses, impacting most significantly on their employees, with large-scale retrenchments becoming necessary, and which in essence is contributing to South Africa’s weakening economy.

It is, however, important for employers to note that even during these difficult times, retrenchment should be the last resort, not least of all because employers who do not adhere to the laws governing retrenchment as stipulated in section 189 and 189A of the Labour Relations Act 1995 (the LRA) may be faced with claims of unfair dismissal in the Commission for Conciliation, Mediation and Arbitration (the CCMA), or in their respective Bargaining Councils.

Having said that, there are several important points to note when considering a retrenchment:

Firstly, employers are advised to consider ‘demotion’ before resorting to a retrenchment. In this instance, the employee will be retained at a lower salary, which may give the employer the opportunity to be able to rebuild the business financially.

The general requirements for a fair dismissal based on an employer's operational requirements are to be found in section 189 of the LRA. However, section 189A provides for specific procedures and remedies, should an employer embark on a large-scale retrenchment.

When contemplating a retrenchment, employers are required to issue a Notice in terms of section 189(3) or section 189A of the LRA.

The written notice must set out the following:

  • the reason for the proposed retrenchment, the alternatives considered by the employer short of retrenchment, and the reason for rejecting each of those alternatives;
  • the number of employees likely to be affected and the job categories in which they are employed;
  • the selection criteria when selecting which employees to retrench;
  • the time or period when the retrenchments are likely to occur;
  • the proposed severance package;
  • the assistance being offered to the employees who are likely to be retrenched;
  • the possibility of future re-employment;
  • the number of employees employed by the employer; and
  • the number of employees that were dismissed as a result of operational requirements in the preceding 12 months.

Further to the aforementioned Notice, the most important aspect of the retrenchment process is the consultation process. In this respect the employer is required to attempt to reach a consensus with employees on appropriate measures to:

  • avoid or minimise retrenchments;
  • change the timing of the retrenchment;
  • agree on the selection criteria;
  • mitigate the adverse effects of the retrenchment, and
  • calculate the necessary severance packages.

Although it is not a requirement, employers are strongly advised to attempt at all times of the retrenchment process to reach consensus with the employee. Should the employer be faced with a claim for unfair dismissal, the employer will be called on to show that it considered all representations and issues raised by the employee before the retrenchment occurred.

When selecting employees, the question has been raised as to what the best selection criteria are. The most fair and objective selection criteria would be that of the “last in first out” principle, paired with the consideration of the employee’s skills and experience. This, however, may be deviated from in certain circumstances where a necessary or specific qualification is required for the job.

When considering severance pay, employees are entitled by law in accordance with the Basic Conditions of Employment Act to a minimum of one week’s severance pay for each completed year of service unless the employer has a more beneficial policy with regard to severance packages.

Employees may also be offered the option of accepting a voluntary retrenchment which in some instances may result in the employee receiving a more attractive pay out to what they would be entitled to in law under a compulsory retrenchment.

Given the effects of the pandemic on the economy, we are experiencing more large corporations commencing the process of large-scale retrenchments in terms of section 189A.

The difference between section 189 and section 189A is that:

  • Either the employer or employee may request facilitation from the CCMA, which means that a facilitator will be appointed to oversee the retrenchment process.
  • Employees cannot be retrenched immediately.
  • If a facilitator is appointed, a final notice of retrenchment may only be delivered to the employee after 60 days from the date of which the section 189 Notice was received by the employee. If no facilitator is appointed, either party may refer the matter to conciliation after 30 days from the date of which the section 189 Notice was received by the employee.
  • No final retrenchment notice may be delivered to employees before the 60-day period has lapsed.

In conclusion, it is important for employers as well as employees to be cognisant of the procedure that governs the retrenchment process in terms of the LRA and to keep in mind the fact that employers may well be held liable for an unfair dismissal if the procedure in terms of section 189 or 189A is not adhered to. Furthermore, in addition to following the procedural steps outlined above, employers are required to show that an employee is being retrenched for a fair reason.

Kayla Pashiou,

Senior Associate Christodoulou & Mavrikis Inc

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