The economic effects of Covid-19 and the consequent lockdown will affect companies drastically both now and for some time in the future. For many, the only means of survival will be the retrenchment of part of the staff complement.
To assist both employers and employees, we have taken the guidelines as set out by the CCMA and set them out below in detail to explain the retrenchment process.
What is Retrenchment?
Retrenchment is the act of releasing an employee from employment due to no fault on their part. This is done unilaterally, by the employer, at his or her election. Retrenchment can, however, only take place where there are economic, technological, and/or structural reasons to do so.
Economic reasons refer to a company’s ability to be financially viable and to generate an income. E.g: Loss of income for the company due to the loss or a client or contract.
Technological reasons refer to companies which have obtained technologies which replace the need for labour. E.g: Automated machinery within manufacturing which makes a job redundant.
Structural reasons refer to the structure of a company and where the employees are placed within the company structure. E.g: Restructuring positions within a company to make it more effective, which subsequently renders a specific position redundant.
Correct Procedure
It is of vital importance to know that if the correct procedure is not followed in its entirety, an employee will have sufficient grounds to refer the retrenchment to the CCMA.
In addition, companies with more than 50 employees have a higher burden placed upon them. This burden includes more stringent requirements than those outlined below.
Consultation
Open communication between the employer and the employees is of vital importance during this time and accordingly, a consultation process must take place between the employer and the employee and/or his or her representatives.
Dependent on the company and its employees, consultations must take place with –
A registered trade union (where applicable);
A workplace forum (where applicable); or
The employee/s likely to be affected.
Consensus
During the above-mentioned consultation process the employer and the relevant consulting parties must attempt to reach a consensus on the following important aspects:
How to possibly avoid the dismissal (including a demotion, working less hours, a decrease in salary, unpaid leave, early retirement, or no longer outsourcing work);
The method for selecting employees to be dismissed;
Ways to reduce the effects of retrenchment;
Minimising the number of dismissals;
The timing of the dismissal; and
Severance pay.
Information in Writing
It is of paramount importance that the Employer provides the employee/s with the following information, as well as all other necessary information which may arise, in writing:
Alternatives to retrenchment considered and why they were rejected;
Possibility of future re-employment;
Proposed method of selection;
Reasons for retrenchment; and
Severance pay proposed.
Selection Criteria
The selection criteria used to identify affected employees needs to be fair and objective and consistently applied.
Every company, and every situation will have different needs and accordingly the reasons for selection will change from situation to situation. Examples of previously utilised methods are:
last in, first out (LIFO);
key skills being retained;
poor performers being dismissed; and
redundant positions being dismissed.
Many companies follow the LIFO (last in first out) principle which retrenches the newest employees while retaining those who have been there for longer. This is, however, not a one size fits all approach and the selection criteria should be determined on a case by case basis.
What alternatives to a dismissal may be raised by affected employees?
Again, this entirely depends on the circumstances. These are some suggestion that may be made by affected employees in order to save or make more money instead of having to retrench them. The employer must consider these suggestions and communicate back to the affected employees the reasons for rejecting the suggestions. The most common mistake made by employers is to not consider alternatives suggested by the affected employees. It must be remembered that the primary purpose of the joint consensus seeking process is to avoid dismissals and the employer must as such be open to workable alternatives. The dismissal of an employee could be found to be substantively unfair if a reasonable and workable suggestion as an alternative to a dismissal was made but the employer outright rejected such a suggestion without justification. Alternatives include:
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
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
This is, however, not a closed list.
How much severance pay?
Employees are entitled to 1 (one) week’s severance pay for each completed and continuous year of service with the same employer. The employer does not have to pay severance pay if an employee unreasonably refuses to accept an offer of employment with the current employer or another employer (sections 41(2), 41(4) of the Basic Conditions of Employment Act("BCEA")). One will also need to consider what is recorded in your employees contract of employment with regards to severance and notice pay and must further take note that all statutory payments will fall due too.
It must be remembered that severance pay for employees that fall under the scope of a bargaining council such as the MEIBC or MIBCO may be different to the minimum prescribed by the BCEA.
Getting it Right
Retrenchment must be both substantively and procedurally correct, failing which the employee may refer the matter to the CCMA.
Correct Substantive Reasons
Retrenchment can only take place where there is a valid reason to do so. This reason, be it economic, technological, structural, or perhaps a mixture thereof, must be communicated to the employee in full so that he or she understands the reasons for their retrenchment.
Correct Procedure
The procedural steps set out above form the basis of the procedural steps which must be followed. A tick box approach must not be taken to these steps where items can be simply ticked but must rather be a two-way street where both parties make an attempt to engage meaningfully with one another. This consultative process is vital in the successful completion of a retrenchment.
Legal Assistance
The CCMA receives a great deal of referrals daily because employers did not follow the correct substantive or procedural requirements. This is due in part to the technical nature of retrenchments and the difficulty in navigating the legal framework.
As the CCMA are entitled to award up to 12 (twelve) months of an employee's salary to a defective retrenchment it is without a doubt more cost effective and beneficial in the long term to approach a legal practitioner to provide assistance.
Feel free to give us a call on 010 109 1055 or email us at greg@kernattorneys.co.za for any assistance with retrenchment.