MAKING RETRENCHMENTS SIMPLE

27 Mar 2009

By Sunisha Roopram Johannesburg North Branch What is an operational requirement? Section 213 of the Labour Relations Act 66 of 1995 (LRA) defines an operational requirement as a requirement based on the economic, technological, structural or similar needs of the employer. From this definition we see that there are four instances were an employer can engage in a retrenchment process, these are: Economic Technological Structural Similar But what exactly does this mean? We will now look at each category individually. Economic reasons - include reducing costs, increasing profits and changes to business requirements. Technological reasons - refers to the introduction of new technology which affects employment either by making existing jobs redundant or by requiring employees to adapt to the new technology or a consequential restructuring of the workplace. Structural reasons - relate to the redundancy of posts consequent to a restructuring of the employees enterprise. Similar - these are reasons relating to anything similar to the above. As long as the reason for the retrenchment makes sound financial sense the Labour Court will not necessarily interfere with managements prerogative to run its business, as illustrated in Kotze v Rebel Discount Liquor Group (Pty) Ltd (2000) 21 ILJ 129 LAC. In order for a retrenchment to be fair, there must be a fair reason (substantive fairness) for the retrenchment, as well as a fair process (procedural fairness) which the employer must follow. The LRA sets out the process to be followed in section 189, when an employer intends engaging in a retrenchment process. In terms of section 189(1) there must be a consultation process with the following parties: parties specified in a collective agreement; trade union; workplace forum or the employees themselves The parties in terms of section 189(2) must engage in a meaningful joint consensus seeking process on the following: methods to avoid the dismissals, changing the timing of the dismissals the number of employees likely to be affected, method for selecting the employees to be dismissed, severance pay, ways of mitigating the adverse effects of the dismissals. An important point to note is that the parties are not required to reach an agreement on the above, however emphasis is on them to engage in a meaningful attempt to reach an agreement. If the parties are unable to reach an agreement, the employer is still entitled to retrench once the process is completed. The employer must invite all the parties to consult by issuing a written notice to retrench in terms of section 189(3). The employer must state the following in the notice: Reasons for the proposed dismissals, Alternatives considered by the employer and the reasons why he rejected them, The number of employees likely to be affected, Method for selecting the employees to be retrenched, Time when the dismissals are likely to take effect, The severance pay proposed, Assistance offered by the employer, Possibility of future re-employment, Number of employees employed by the employer, Number of employees dismissed by the employer in the past 12 months for operational requirements. The employer must allow the consulting parties to make representations on the above or any other relevant matter and must respond to the representations made. The employer can consider the following alternatives before retrenching although the list is not exhaustive and the employer should consider all alternatives prior to making a decision to retrench. Implementing short-time, Moratorium on overtime and recruitment Voluntary overtime, Cutting the cost of overheads, etc There are various methods of selecting the employees to be dismissed, the most commonly used are the following: LIFO (Last in first out), Skills, Performance Standard, Misconduct, Bumping. If the parties fail to agree on a selection criteria, the criteria selected by the employer must be fair and objective. In terms of the Basic Conditions of Employment Act 75 of 1997,) (BCEA) the minimum amount of severance pay due to an employee is one week for every continued year of completed service. However should an employer be party to a bargaining council, the main agreement of the bargaining council may provide different terms payable as severance pay. Disputes relating to operational requirements are referred to the Labour Court for adjudication once the conciliation process has failed. In circumstances were an individual employee is dismissed for operational requirements, that employee may refer the dispute to the CCMA for arbitration. However in the Rand Water v Bracks NO and Others (2007) 28 ILJ 2310 (LC)) (Rand Water) case, Judge Nel found that in matters which concern the dismissal of a single employee for operational reasons, the CCMA has jurisdiction only where the dispute centres on substantive fairness, and that where the issue to be determined concerns only procedural fairness the CCMA has no jurisdiction and such matters must be referred to the Labour Court. However, in the recent decision of Scheme Data Services v Myhill and others) the Judge was of the opinion that the result of Rand Water cannot stand. He stated that the judgment in that case is plainly wrong on a plain reading of section 191(12) of the LRA. The finding in this matter was that the CCMA has jurisdiction to arbitrate a dispute about procedural fairness. Employers may not give notice of termination unless all the aspects in the notice to retrench have been consulted on. If an agreement was reached the employer must adhere to it, if no agreement was reached the employer has the prerogative to decide, which decision can later be challenged. The retrenchment process is serious and must be approached in this light. If the process is not adhered to the employer may face a compensation award of a maximum of 12 months. Labournet consultants are specifically trained to assist companies with retrenchments and to limit the risks associated with embarking on this form of action. Remember that with a retrenchment you are dealing with mass dismissals and this in turn means your liability is increased. Think of it this way, you retrench 10 employees and they all refer an unfair dismissal. If they are successful in their claim, you could be liable for paying an amount equivalent to their combined 12 month salary and on top of this, ordered to reinstate the employees. Let Labournet assist you with this process. We will initiate the process, draft all documentation, and conduct all consultations on your behalf. Contact your Labournet consultant directly or the LabourNet Helpesk or telephone 0861522638 for assistance. Not yet a Labournet client, but would like to know more about our services and products, visit our Labournet website or send a mail to sales and they will contact you to set up an appointment. If you have a question for the author about this article or require any other information please email the LabourNet Helpesk