Business Continuity Against Covid-19: The Rules of Retrenchment
The COVID-19 scourge has resulted in many businesses struggling to keep afloat, with most weighing the rationality of staying open while faced with prospects of the pandemic being here to stay. As per recent media reports, a newly discovered variant of the virus is transmitting at an alarming rate prompting South Africa to adjust back to Level 3 of restrictions at midnight on 28 December 2020.
Despite the aforementioned, the government of South Africa has encouraged economic activity to continue albeit on a cautious approach that answers to concerted efforts of reducing transmissions. This includes working remotely for employees and operations that can do so, reducing the number of employees who may be in the workplace simultaneously, introduction of shorter working days in the workplace as well as effecting leave where it is possible to do so. Unfortunately for most businesses these can be achieved at a cost to revenue streams which then puts business continuity under imminent risk. Once that happens the business owner is left with little choice but to reduce operational costs, with human resources being top of the list. However in as much as it becomes rational to reduce the wage bill through retrenchments, COVID-19 is not an excuse not to comply with Sections 189 and 189A of the Labour Relations Act 66 of 1995 (LRA) which regulate the procedures of retrenchment due to operational requirements of the employer.
Section 213 of the LRA defines operational requirements as ‘requirements based on the economic, technological, structural or similar needs of an employer.’ Should it become evident that the business is operating at a loss, for example, the employer may opt to retrench some employees to keep costs and revenue at par. Alternatively, should an employer purchase new technology to increase capacity and output in line with industry demands, the employer may retrench employees whose jobs are now redundant. While the Courts prefer to steer clear of interfering in business decisions of business owners as was noted in Kotze v Rebel Discount Liquor Group (200) 21 ILJ 129 (LAC), it is trite that there must be actual and evident reason to justify the retrenchment as was the case in Welch v Kulu Kenilworth (Pty) Ltd and Others (2013) 34 ILJ 1804 (LC) which resorted to retrenching employees as it was operating in insolvent circumstances. The tenets of substantial and procedural fairness both apply.
Section 189 and 189A Retrenchment Procedures
The two sections must be read together as the procedure is basically the same albeit with further requirements under section 189A. Small employers are those who employ less than 50 employees, whilst a big employer is one with more than 50 employees. Section 189 applies to small employers contemplating on retrenchment of any number of employees and big employers contemplating on small scale retrenchment of employees. Big employers who contemplate large scale retrenchments in any consecutive 12 month period, are bound by section 189A. Large scale retrenchment is translated to the hereunder;
i. 10 employees, if the employer employs up to 200 employees
ii. 20 employees, if the employer employs more than 200, but not more than 300 employees
iii. 30 employees, if the employer employs more than 300, but not more than 400, employees
iv. 40 employees, if the employer employs more than 400, but not more than 500, employees
v. 50 employees if the employer employs more than 500 employees
Firstly all employees that will be affected by the retrenchment must be notified in writing of the proposed retrenchment, in a non-foregone manner. The notice will be an invitation for a consensus-seeking consultation process on various issues connected to the proposed retrenchment, which issues must be disclosed in the notice before final determination of the retrenchment.
Secondly the consultation must thereafter take place between the employer and either the trade union, workplace forum, employees to be affected or any party who is supposed to be consulted under a collective agreement. This consultation process must address the issues of reasons for retrenchment, alternatives considered to avoid/postpone retrenchment or reduce the number of affected employees, selection criteria, severance pay, available support and possibility of re-employment in future. In the case of CWIU and Others v Algorax (Pty) Ltd (2003) 24 ILJ 1917 (LAC) it was held that retrenchment should be a matter of last resort, hence the consultation process is aimed to seek alternatives to and good reason for retrenchment.
Thirdly the termination notices must be sent to the affected employees as per the agreed or in the absence of agreed criteria, a fair and objective one.
Finally severance pay must be paid to the affected employees.
Under section 189A the CCMA must appoint a facilitator of the consultation process if the employer, consulting parties of the employees or both, request facilitation. Employees may also participate in a strike to register displeasure with the retrenchment. Alternatively they may refer the matter to the Labour Court for matters of substance or procedural fairness. In terms of the latter, employees must refer the matter as soon as possible as was upheld in the case of Karin Steenkamp and 1817 Others v Edcon Limited 2019 (7) BCLR 826 (CC) whereby the Constitutional Court held that compensation for a procedural defect may not stand alone as relief as per 189A (13) (d) long after the dismissals have taken place.
Conclusion
Employers are bound by the LRA retrenchment procedures even during the time of COVID-19. We at NVDB Attorneys stand ready to assist both employers and employees through this process as non-compliance may result in the aggrieved party seeking relief which may come at a premium to the breaching party.
