Restructuring and Retrenchments

Section 1

It comes by many names: downsizing, rightsizing, restructuring…

In this agile world, companies need to continuously test whether they are optimally structured to deal with the ever -changing environment. Whether it is gearing up for rapid growth, reducing to cut costs, or simply reshuffling and changing job requirements for optimal performance, companies need to constantly change.

Should this restructuring potentially result in retrenchments (dismissal for operational requirements), then section 189 of the Labour Relations Act sets out very specific requirements which the employer must adhere to.

But what would constitute a legitimate reason for proposing a retrenchment? The acts stipulates the following: economic, technical, structural, or similar.

As with any piece of legislation, the Courts have been called upon to interpret it over the years and it has often proven to be open to different interpretations. The Act stipulates that as soon an employer contemplates the possibility of retrenching, then they must consult with employees. This may mean consulting with unions or even individual employees and the Act sets out the criteria for this. Consultations need to take the form of a joint consensus seeking exercise and it is critical that employees are not simply presented with a fait accompli.

As part of the consultation process, section 189 (3) states that the employer needs to provide the following information in writing:

  • The reasons for the proposed retrenchments;
  • The alternatives considered before proposing the retrenchments and why they were rejected;
  • The proposed selection criteria;
  • The timing of the dismissals;
  • The number of employees likely to be affected;
  • The proposed severance pay;
  • The assistance that the employer proposes;
  • The possibility of future re-employment;
  • The number of employees in the company;
  • The number of retrenchments over the preceding 12 months.

The above information is to allow the parties to engage fully in the consultations to try and find a way of either avoiding the retrenchments or ameliorating the effects thereof. What is important to remember is that whilst agreement does not have to be reached,  the employer must show that it has engaged in the consultations in good faith. Ultimately, the decision however rests with the employer.

One of the issues we will  look at next week we be the situation where the proposed restructure would change the terms and conditions of the employees. What are the employer’s options if they refuse to agree?  

(This article is for informational purposes only and is not to be construed as legal advice. For more information on the topic, please contact StratLabour)

Section 2

Last week we touched on some of the procedural requirements for a retrenchment exercise. As part of this process, the parties need to look at any viable alternatives which may avoid the retrenchments or ameliorate their effects. Alternatives may come in the form of changing the working hours or even the way employees are paid and as such this would affect terms and conditions of employment. These of course may be contractual and the only way to amend them would be by agreement. In other words, you cannot force the change on an employee. But what if a viable alternative exists and the employees dig in their heels and simply refuse?   

The latest case law suggests that if there is a genuine reason for the proposed retrenchment and the alternative  would in fact save the employee from retrenchment, then a refusal by the employee to accept the change could ultimately (in the absence of other alternatives), lead to his or her dismissal. The employer would then be entitled to employ people who are agreeable to work the new terms in order to satisfy the operational requirement.  It must be remembered that there must be a genuine reason for the retrenchments and that the threat of retrenchment cannot be used as a way of simply forcing employees to accept a change to terms and conditions of employment.

What about short time? Can this be used as an alternative to dismissal? The short answer to this is yes, however again, we would need to consult fully and obtain consent as an alternative to dismissal. Short time and lay-offs have been used extensively during the COVID-19 pandemic, however this has not always been done with consent.

The above is an extremely tricky area of law and it is imperative that the employer ensures procedural and substantive fairness in the exercise.

Next week we will look at large scale retrenchments and the provision of the Labour Relations Act which deals with this.

(This article is for informational purposes only and is not to be construed as legal advice. For more information on the topic, please contact StratLabour)

Section 3

This week we will look at large scale retrenchments. Section 189A of the Labour Relations Act (LR), places other obligations on the parties.  It sets out the conditions under which this section will apply, and is based on the size of the employer and the number of employees likely to be affected, which includes the number who may have been retrenched in the preceding 12 months.   This section allows for a facilitator to be appointed to assist the parties in the consultations between them. At least 4 sessions must be held and a minimum period of 60 days must lapse before a decision may be take.

If no facilitator is appointed then the employer must consult for at least 60 days and a conciliation at the CCMA must be held. The employer may refer the matter to the CCMA 30 days after having issued the 189(3) letter (dealt with in part 1 of these articles). Employees can challenge procedural fairness by making urgent application to the Labour Court and can challenge substantive fairness by either approaching the Labour Court or embarking on industrial action.

The duty remains on the parties to consult in good faith and to try and find alternatives and all the points raised in the 189(3) letter need to be fully ventilated. The employer also needs to properly consider and respond on all issues raised by employees.