Retrenchment and measures how to avoid retrenchment

Retrenchment is nothing but a dismissal for operational reasons, which can include a variety of reasons

Source: Johanette Rheeder

It is estimated that more than one hundred thousand employees have been affected during 2008 by the decline in the economy and the spin off on the world wide recession, either by being laid off or being hit by interim measures such as short time, extended time off without pay, cuts in overtime, no bonuses being paid or little or no increase in salaries. Many smaller employers are reducing numbers and owners and managers are going back to the drawing board to streamline businesses.

The prediction for 2009 is even grimmer with a projected incline of 3% in the unemployment rate and job losses being estimated to be between two hundred and three hundred thousand, the worst hit industries being the automotive, mining and clothing and textiles sectors.

Retrenchment is nothing but a dismissal for operational reasons, which can include a variety of reasons such as the financial decline of a business, an employer deciding to increase profits of his business or a part thereof, the introduction of new technology that results in a decline in positions or structural changes such as the transfer of a part of the business of the employer. Retrenchment is also known as a “no fault dismissal”. Due to the fact that it is in essence still a dismissal, the requirement of “fair labour practices” still applies. Fair labour practices are the constitutional right of every employee. The Constitution, by way of section 23(1) (a), specifically declares that every person has a fundamental right to fair labour practices. In the context of retrenchment, expression is given to this in the Labour Relations Act by affording an employee the right not to be unfairly dismissed and an employer the right to dismiss an employee for a fair reason based on the employer’s operational requirements and in accordance with a fair procedure.

The Labour Relations Act 66 of 1995 (LRA) codifies the requirements for retrenchments by way of section 189 and 189A. Employers cannot achieve a fair retrenchment process without following the requirements of the LRA as it underlines the constitutional right to fairness. Section 189 therefore regulates the exercise of the competing fundamental rights of an employee not to be unfairly dismissed and that of an employer to dismiss for operational reasons.

Because retrenchment is a “no fault” dismissal and because of its human cost, the LRA places particular obligations on an employer, most of which are directed toward ensuring that all possible alternatives to dismissal are explored and that the employees to be dismissed are treated fairly.

Section 189 and 189A places a high value on consultations, in fact, if the employer fails to consult with employees on retrenchment, it will be an unfair retrenchment and the employer will face re-instatement or a compensation order. The purpose of consultation is to enable the parties, in the form of a joint problem-solving exercise, to strive for consensus, if that is possible.

It is required of the parties to attempt to reach consensus on, amongst other things, appropriate measures to avoid dismissals. In order for this to be effective, the consultation process must commence as soon as a reduction of the workforce, through retrenchments or redundancies, is contemplated by the employer, so that possible alternatives can be explored. The employer should, in all good faith, keep an open mind throughout and seriously consider alternative proposals put forward. If this is not done and the employer made the decision before the process commenced, it will render the retrenchment substantively unfair.

The list of measures to avoid dismissals is vast and dependent on the employer and the industry the employer is operating in. Examples thereof are:

• measures to increase productivity;
• short time;
• rationalizing costs and expenditure;
• increase or decrease in shifts and length of shifts;
• decreasing the number of contractors or casual labourers;
• using employees to perform the functions performed by contractors or casual labourers
• outsourcing a function to its own staff after the employees have formed themselves into a company;
• skills development to enable employees to move into different positions;
• stopping overtime or Sunday work
• bumping
• reducing wages (by agreement)
• early retirement offers or schemes
• moratoriums on hiring new employees
• gradual reduction of workforce by way of natural turnover
• extended unpaid leave or temporary lay-off
If one or more employees are to be selected for dismissal from a number of employees, the LRA requires that the criteria for their selection must be either agreed with the consulting parties or, if no criteria have been agreed, be fair and objective criteria. An example of fair selection criteria is “LIFO”, which means that the last employee in, therefore the one with the least amount of service, is the first employee to be chosen for retrenchment. This criterion is based on years of service and not on any subjective means such as the performance or disciplinary record of the employee, which will be unfair.

Employees dismissed for reasons based on the employer’s operational requirements are entitled to severance pay of at least one week’s remuneration for each completed year of continuous service with the employer, unless the employer is exempted from paying severance.

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