Retrenchments on the Rise
Published in Labour Law · 5 July 2022
The South African economy has been tightening in the last year and it does not seem to be letting up for the individual and the business owner. Increasing fuel prices, increased sectoral determinations, inflation rates and taxes have plunged many once-thriving businesses into survival mode. Technological advances have lowered the barrier to entry in certain markets multiplying competitors daily who are offering similar products and services at half the price.
To survive in this economic climate, many employers are faced with the challenge of lowering expenses to ensure the continued viability of their businesses. The process begins by examining operational expenses and after lengthy cost-cutting and stream lining initiatives, the employer will be forced to look at his/her employees. The salaries and wages expense can be reduced with the implementation of short-time but significant reduction is only seen with the culling of employees i.e. Retrenchments or Dismissals for Operational Reasons. The number of retrenchments is only a reaction to the poor performance of the economy and we are seeing the number of retrenchments increase. So, is a retrenchment exercise the best solution for your business and is it risk free? What does the Law say about retrenchments? Can we retrench individuals as we please? Let’s take a look…
The Labour Relations Act permits employers to dismiss employees for operational requirements. These are defined as requirements based on economic, technological, structural or similar needs of the Employer. Economic reasons are those that relate to the finances of the enterprise. Technological reasons refer to the introduction of new technology which makes existing jobs redundant. Structural reasons relate to the redundancy of posts consequent to a restructuring of the Employer’s business, for example, a hardware store that closes down a certain division within the business.
The first step when considering a possible retrenchment is to consult with all employees who may be affected if the retrenchment goes ahead. This includes consultation with any trade union if their members may be affected by the retrenchment. The purpose of this consultative process is for the consulting parties to be aware and reach consensus on certain issues.
All parties who have been consulted must be afforded an opportunity to make representations and provide feedback prior to any confirmation of the retrenchment.
In terms of payment to an employee who is retrenched, an employer is required to pay the employee his or her salary up until the last day worked; any outstanding annual leave; severance pay and notice pay.
Business owners who are overwhelmed and desperate to save their businesses may resort to retrenching without applying the procedural and substantive requirements that are laid down in the Labour Relations Act. Retrenched employees have the right to challenge their retrenchment at the Commission for Conciliation Mediation and Arbitration (CCMA) or at the Labour Court. Failing to follow the necessary procedures or retrenching employees without a bona fide reason may result in the employer landing themselves in hot water and having to pay a further sum of money or having to reinstate employees that were retrenched, often with back-pay. This situation should be avoided at all costs as it does not serve to reduce business expenses.
This article does not constitute legal advice and is based on the author’s interpretation of legislation and case law. Book a consult for legal advice or assistance pertaining to your specific matter.