Contemplated Retrenchments Under Covid-19 - What The Law Says

COVID-19 is wreaking havoc worldwide, and with life in SA being placed on hold, business and employees are being hit hard.

The South African Government has recently announced measures to assist struggling Employers with the Financial impact of COVID-19. While employers are encouraged to make use of the scheme ahead of making any decision regarding retrenchments, it is recognised that the TERS wage subsidy scheme will not shield businesses sufficiently from the full impact of COVID-19. Ultimately, if the Employer is unable to afford to retain their staff, they may consider retrenching employees for “operational requirements”.

Operational requirements means requirements based on the economic, technological, structural or similar needs of the employer. This may include the drop in sales or service of the employer, or closure of the business occasioned by the National Lockdown effected to curb the spread of COVID-19

For purposes of this article, we round-up the process to be adopted  as set out in Section 189 of the Labour Relations Act 66 of 1995 (“LRA”), which deals with employers who employ less than 50 employees. Employers who employ more than 50 employees are required to comply with section 189A of the LRA.

Justifying retrenchments will always be on a case by case basis, even during these unprecedented times, and should only be used as a method of last resort. We strongly urge Employers to be pro-active and obtain legal advice should they foresee that their business would need to shut down or has already shut down operationally, as Employers more often than not start the consultation process far too late in the day.  

The provisions of South African law is focused strongly on preserving employment and makes it clear that a retrenchment is a no-fault dismissal and that alternatives must first be exhausted, which includes:

- The reductions or changes to terms and conditions of employment, which may include demotion (However a change to the terms and conditions of employment cannot be effected unilaterally by an employer without consulting with the employee. Should an employer demote an employee without affording the employee the right to be heard, it could amount to an unfair labour practice with the employer being liable to the employee for either reinstatement or compensation);

- Lay-off;

- Working of short-time, placing a moratorium on new appointments, overtime or Sunday work;

- Transferring affected employees to other jobs in the employer’s business or group;

- Training or re-skilling employees for other available positions, and granting extended unpaid leave.‍

The Court looks at whether an employer’s decision to retrench was fair by asking the following questions:

1. Whether the decision to retrench is merited;
2. Whether the employees elected for retrenchment were fairly chosen;
3. Whether the correct procedure as set out in the LRA has been followed properly and in good faith by the employer;
4. Whether all documentation and other information pertinent to the retrenchment, has been shared with targeted employees.
5. Whether the retrenchment was unavoidable.

In terms of Section 189(1) of the LRA, an employer must consult with the employees who are likely to be affected by the retrenchment, or their workplace forum, registered trade union or elected representatives (If any).  The employer and consulting employees must engage in a consensus-seeking process on certain matters contained in the notice. The main aim is to facilitate job security.  In terms of section 189(2) of the LRA, an attempt must be made to reach consensus on:

• measures that could be implemented to  avoid retrenchment; and
• measures that could be implemented to minimise the number of dismissals; and
• The change of the timing of the dismissals;
• The mitigation of the adverse effects of the dismissals; and
• the method for selecting the employees to be dismissed. In this regard, Section 189(7) of the LRA provides guidance, as well as the CCMA Code of Good Practice on Operational Requirements enumerates that the following criteria would be considered as fair and objective:
• LIFO – Last In, First Out (poses the least risk if fairly applied);
• Length of service or bumping (keeping positions that are core or fundamental to the operation of the business or bumping employees to other positions;
• Skills retention and experience or qualifications (must have proof of the employees’ experience and qualifications);
• Severance pay.  

In terms of section 189(3) of the LRA, an employer must, as soon as the company considers retrenchments, disclose the following information to the employee, alongside the date on which the first consultation will take place:  

• the reasons for the proposed dismissals;
• the alternatives considered by the employer to avoid the proposed retrenchment and the reasons for rejecting each of the alternatives;
• the number of employees likely to be affected and their job categories in which they are employed;
• the proposed selection criteria for selecting employees for retrenchment
• date on or the period during which the retrenchment is likely to take effect;
• the proposed severance pay to those who will be dismissed;
• any assistance that the employer proposes to offer the employees who are retrenched;
• the possibility of future employment of the employees who may be retrenched;
• the number of employees of the employer; and/or
• the number of employees that have been retrenched for the last 12 months.
• If the information on the notice is not sufficient, the consulting employees may request the employer to disclose more information.

Thereafter, the Employer and Employees must engage in the consultation process. The consultation is an extended process and not merely a once-off meeting nor is it a box ticking exercise.  The law therefore requires the employer to engage in constructive and rational dialogues with Employees, and to turn over every stone in an effort to find alternatives to retrenchment. The employers must approach the consultation process with an open mind and be prepared to consider the Employees’ views and if the employee makes representations in writing, the employer must respond in writing.

Considering the current social distancing measures put in to place, the joint consensus-seeking process can take place by making use of IT platforms such as Zoom, Skype or Microsoft Teams.

In the event of employees belonging to a trade union, the employer is required to consult with that union on several issues, the most important of which is ways of curbing job losses. Should the employer choose not to engage in proper pre-retrenchment consultations, and the employees are forcibly retrenched, this would normally result in a finding of unfair dismissal.  

After the consultation, the employer is obliged to consider and respond to the submissions made by the other consulting parties and to give fair reasons for having made the decision

Once the consultation process has been finalised, the Employer may apply the selection criteria and issue the notice of retrenchment to the affected Employees in writing.  

Affected Employees are entitled to at least 1 week’s pay for each completed year of ongoing service as well as any statutory benefits. However, the employer must pay the retrenched employee the amount specified in any policy or his/her employment contract, if that amount is larger.

Once an employee is retrenched, they would be entitled to claim from the Unemployment Insurance Funds  (“The UIF”). Affected Employees must apply for the UIF benefits as soon as they become unemployed or within six months of the termination of their employment.

In these unprecedented times, Employers and Employees alike need to be aware of their rights and obligations. Employers considering retrenchment should ascertain their legal position before any action is taken. Employees should be prepared for the possibility of retrenchment or being placed on unpaid leave, and understanding their rights in terms of the LRA and to work with their Employer to produce the best outcome for both parties. ‍