The why of retrenchment - employers be warned

The COVID-19 disruption with the continued national lockdown to business and a pre-existing depressed local economy is forcing many employers to seriously consider retrenchments. It falls mostly to Human Resources Practitioners to advise and lead employee consultation in the business restructure. Sometimes, a legal review of the statutory consultation notice issued under section 189(3) of the Labour Relations Act, 1995 (the LRA) is also undertaken.  Contemplated retrenchments arising in these difficult and extraordinary times and the substantive reasons behind them are not immune from compliance with section 189/189A of the LRA.

Written by Imraan Mahomed, Director: Leader Employment/Labour Law, Lawtons Africa, for LexisNexis South Africa

[Durban, 11 May 2020]

When lawyers are called upon to review a section 189(3) notice, there are notoriously lots of questions relating to the substantive reasons for the restructure that are asked and analysed. Is it really necessary, as the Labour Courts have historically taken the view that the consultation notice and procedural compliance, which follows the issue of the notice, is not a tick box exercise? So, is a nit-picking of the draft section 189(3) notice an "overkill" or business critical?

Businesses are well remined of the November 2018 decision of the Constitutional Court where the Court was called upon to determine the fairness of the dismissal of 44 employees under section 189A of the LRA in South African Commercial, Catering and Allied Workers Union and Others v Woolworths (Pty) Limited. The dismissal for operational requirements went back six years to November 2012 and it followed a CCMA facilitation process.

The sole reason advanced by Woolworths in the section 189(3) notice, contemplating the retrenchments, was: "The company needs to be in a position to employ employees who are able to be used on a flexible basis.”

During the consultation process, the union agreed that its members would work the flexible hours and days required. Once this was achieved, the Constitutional Court and lower courts found that this meant that there was no longer a need for the retrenchments. The consultation process should have come to an end. The affected employees were then to be employed on the flexible terms of contract. This obviously follows as a matter of law and should have brought the consultation to an end.

Woolworths, however, argued that the court should read the section 189(3) notice holistically and that would reveal that there were additional reasons for the retrenchments, namely considerations of equity and cost efficiency. This argument was rejected by the court as the section 189(3) notice emphasised the “need to employ people who are able to work according to flexible working arrangements. This would improve both the costs and the operational efficiencies of the business”.

Accordingly, the notice revealed that the sole reason for the retrenchments was the need for flexibility, with the benefits of that flexibility being greater cost and operational efficiency and not that these were intended to serve as self-standing reasons. So, the end result being that Woolworths on its own notice was unable to satisfy the court(s) that there was a fair reason for the dismissals. The consequence under the LRA for not satisfying the court with a fair reason for dismissal is reinstatement. Despite the lengthy period since the dismissals the court awarded retrospective reinstatement.

The age-old advice rings true again - hurry slowly with a section 189(3) notice and be prepared to "cross the Ts and dot the Is" ahead of time or be ready to face the consequences.

Employers should be careful as once this pandemic comes to rest and it will, unfair dismissals will not, and employers will be able to seek reinstatement for an unfair retrenchment with the courts being prepared to grant reinstatement with back pay going back for a number of years.  Woolies is only a recent example as there are other employers who also have had to take their medicine.  Better that employers be safe on this front as well.