There have been a significant amounts of dismissals based on Companies Operational requirements (retrenchments) over the last few years as well as a definite rise in CCMA referrals by employees who allege they have been retrenched. (Note the word retrenched is incorrect in the context of the Act, but is used here for convenience)
In the current strike season Employers will retrench further in an attempt to contain labour costs.
Although the Labour Relations Act has been in place for some time there remains a great deal of confusion as to the practicalities in conducting a retrenchment exercise.
What does Operational Requirements mean?
Section 213 of the Labour Relations Act defines operational requirements as “requirements based on the economic, technological, structural, or similar needs of an Employer”.
In plain language the Company must advance some plausible reason for the proposed dismissals which may be anything from a need to curtail costs to a need to reorganize to meet different business needs. Although there is significant debate, the courts have thus far declined to second guess corporate logic, or for that matter intelligence in the decision to retrench.
When may an Employer terminate the services of an Employee?
Once the Company contemplates retrenchments it must prior to making a decision advise and consult with the employees or their designates and follow the provisions contained in Section 189 of the Labour Relations Act, which provides that the Employer must:-
- Determine which employees will be affected by the proposed termination;
- Consult with any person who represents the affected person in terms of a collective agreement, registered trade union or workplace forum (Section 189 (1));
- Issue a written notice calling on all the affected persons (employees) or any other consulting party to consult with the Company, as well as disclosing in the notice all relevant information to the proposed dismissals, including:
- the reasons for the proposed dismissals;
- alternatives that the employer considered before proposing the dismissals, and the reasons for rejecting each of those alternatives;
- the number of employees likely to be affected and the job categories in which they are employed;
- the proposed method for selecting which employees to dismiss;
- the time when, or the period during which, the dismissals are likely to take effect;
- the severance pay proposed;
- any assistance that the employer proposes to offer to the employees likely to be dismissed;
- the possibility of the future re-employment of the employees who are dismissed;
- the number of employees employed by the employer; and
- the number of employees that the employer has dismissed for reasons based on its operational requirements in the preceding 12 months.(Section 189 (3))
During the consultation process the Employer and consulting parties must attempt to find any possible alternatives to avoid the dismissals, limit the number of dismissals, change the timing of the dismissal, and mitigate the adverse effects of the dismissals (Section 189 (2)).
The Employer must allow the Consulting party the opportunity to make any representations relative to the proposed dismissals which the Employer will have to consider and respond to, giving reasons for its decisions (Section 189 (5) and (6)).
The Employer is also obliged to consult on the issue of severance pay for the affected employees during this time.
What are the selection criteria for retrenchments?
The Company is obliged to follow LIFO by job category and where the Company seeks to depart from LIFO to retain skills it must be prepared to justify its decision.
What alternatives to dismissal may be raised by an affected employee?
The circumstances of each case will indicate the alternatives an affected employee may raise and which an employer must consider and respond to. If an employer does not consider the alternatives raised by an affected employee the dismissal could be classified as substantively and/or procedurally unfair. Some examples of alternatives to dismissal would be decreasing an employee’s salary or wages, utilising an employee elsewhere in the workplace, developing the skills of the affected employee, or re-instating an affected employee with less responsibility and functions.
What severance pay is an employee entitled to if dismissed?
If an employee’s services are in fact terminated and the affected employee is retrenched, they will be entitled to one week’s wages per completed year of service with the Company as severance pay. Where a Company has set a precedent in paying for example two weeks wages for each completed year of service it would need to justify the departure from that precedent.
Although the provisions of S189 seem somewhat simple, the scale of litigation would indicate that this is an exercise not to be embarked upon without proper legal advice.