WHAT IS RETRENCHMENT?

RETRENCHMENT

Retrenchment is a form of dismissal. However, it’s not due to a fault on the side of the employee (for example poor work performance). It is a process wherein the employer reviews the business needs, profitability and other operational factors in order to increase profits or limit losses. As a result, in most cases, this means that the business has to reduce employees.

This process is quite complex and requires “exhaustive” consultation with the affected employees or their representatives. The employer must give fair reasons for retrenching employees and follow a fair procedure when making such a decision. Thus, ensuring that they comply with the Labour Relations Act and the rights of their employees. However, if an employer doesn’t provide the proper reasons and doesn’t follow the proper procedures, the CCMA or Labour Court can consider the retrenchment unfair.

WHEN MAY EMPLOYEES BE RETRENCHED?

Employers may only retrench if “Operational Requirements” necessitates it. Operational requirements are requirements based on the economic, technological, structural, or other business needs of an employer.

View a short list of examples below:

• Economic factors: Decline in sales or services. Closure of business. Economic recession.
• Technological factors: New technology that can replace some employees to reduce cost.
• Structural factors: Restructuring of the business. New ownership or a merger of two companies.

Fairness of the retrenchment:

When the court has to decide whether or not the employer’s decision to retrench was fair, it considers the avoidability of retrenchment, as well as the process that was followed. Thus, employers should only proceed with retrenchments as a last resort or if there are no alternative solutions.

What is considered to be a fair procedure for retrenchment?

Step 1 – Invitation to consult:

The employer must invite employees that are likely to be affected by the retrenchment, to attend a consultation and provide them with all the required information in order to consult meaningfully. Then, the employer must openly and honestly discuss the reasons for retrenchments and mention the affected employment areas. Afterward, employees will be able to provide alternative ideas and make suggestions. The employer must disclose all the necessary information during the consultation. Necessary information includes the timing, financial and emotional impact, selection process and other issues, as required by legislation. In fact, this should be a consensus-seeking process. Finally, the employer must respond to the consulting employees’ representations and suggestions. If the employer disagrees with the consulting employees, they should provide valid reasons for disagreement.

Step 2 – Notice of Retrenchment:

If retrenchment is unavoidable, the retrenchment process moves to the next phase. Then, the employer must select the employees to be dismissed based on fair selection criteria, or objective criteria that was agreed upon with the consulting employees. Possible selection criteria can include the principle of “last in, first out” (“LIFO”), length of service, skills, qualifications and/or experience. Additionally, the law provides a number of requirements that must be met in the case where the business has more than 50 employees and is considering retrenching a significant portion of its employees.

Step 3 – Notice of Termination:

This notice will be the final notice given to the employee to end and terminate the working contract. The retrenchment procedure require certain notice periods as per the BCEA or Bargaining Council agreements.

Payment packages offered to a retrenched employee:

As part of the retrenchment procedure, employees are entitled to payment packages. These packages can serve as a financial buffer while the employees look for new working opportunities.

A payment package includes different types of payments. For example:

• Severance pay – A retrenched employee must receive at least 1 week’s pay for each completed year of employment at the company. However, if there is a specified amount in the contract of the employee or in the policy of the company, the amount may be larger.
• Leave – If the employee has leave that has not yet been taken, the employer must pay the amount for the number of days left.
• Notice pay – In the event that an employee doesn’t work the usual notice period before being retrenched, they will receive notice pay if employed for:
• • Less than 6 months, the employee must be paid 1 weeks’ notice pay;
  • More than 6 months but less than 1 year, the employee must be paid 2 weeks’ notice pay;
  • More than 1 year, the employee must be paid 4 weeks’ notice pay.
• Other pay – There could be other arrangements in the employee’s contract that could be paid out. For example, any pro-rata payment of a bonus, pension, etc.
• A retrenched employee is also entitled to claim unemployment benefits (“UIF”).

Voluntary Retrenchments:

Voluntary retrenchments are when the employee enters into an agreement with the employer to be retrenched. Therefore, the employee will not be able to claim unfair dismissal or additional pay. However, in return, the employee accepts a retrenchment package which includes severance pay, leave, and other payments according to the employment contract. Usually, such retrenchment packages include additional benefits. A legal agreement exists on acceptance of such a voluntary retrenchment offer.

Unfair retrenchments:

Employees that have been unfairly retrenched can refer a dispute to the Commission for Conciliation, Mediation and Arbitration (“CCMA”) or a bargaining council. However, the employee must refer the dispute within 30 days from date of retrenchment. Then, if the parties cannot resolve the dispute at conciliation, the general rule is that the employee may then refer the dispute to the Labour Court. However, there are certain limited instances where the CCMA retains jurisdiction to arbitrate retrenchment disputes.

In the Labour Court or CCMA, a decision can be made for the employee to be reinstated or compensated. Therefore, it is important to follow the correct procedures when commencing retrenchments.

NEASA has professionals that can assist you during your retrenchment process. We will provide you with all the necessary documents, procedures and consultations. In addition, we also attend disputes at the CCMA. Contact Us today to become a member.