Retrenchment: A solution or another problem?
Many employers believe cutting the cost of employment often has a direct, immediate and meaningful (positive) impact on their businesses, but the jury is still out on that issue. We look at the minimum requirements when contemplating restructuring a business or retrenching employees.

Section 189 of the Labour Relations Act, 66 of 1995, stipulates that an employer must consult with trade unions if they are contemplating retrenching employees.

This will allow the employer and the consulting party to engage in a meaningful, joint consensus-seeking process in an attempt to reach an agreement on possible measures to avoid retrenchment, minimise the number of such dismissals, change the timing of the dismissals, and mitigate the adverse effects of the dismissals.

Consultation also allows both parties to investigate and agree on the method for selecting employees to be dismissed as well as the severance pay that will be offered.

Written notice to trade union is first step
It is the employer’s responsibility to issue a written notice inviting the consulting party (trade union) to consult with them. This written notice has to disclose relevant information, including, but not limited to, the following:
  • The reason for the proposed dismissals;
  • The alternatives that the employer considered before proposing the dismissal, and the reasons for rejecting each of those alternatives;
  • The number of employees likely to be affected and the job categories in which they are employed;
  • The proposed method for selecting which employees to dismiss;
  • The time when the dismissals are likely to take effect;
  • The proposed severance pay;
  • The assistance that the employer proposes to offer to employees likely to be dismissed;
  • The possibility of future re-employment of employees who are dismissed;
  • The number of employees employed by the employer; and
  • The number of employees that the employer has dismissed for reasons based on operational requirements in the preceding 12 months.
This information will enable the consulting parties to engage in the retrenchment process. It should be noted, however, that the decision to retrench is the last decision to be made in the process, and not the first decision. In other words consultation must be done before the decision to retrench is made.

The grounds for retrenchment
Retrenchments can only be justified on economical, technological, structural and similar grounds.

Economic grounds relate to employers having financial difficulties which make it very difficult for them to retain all their employees and it also relates to employers aiming to generate additional profit.

Technological grounds refer to replacement of employees by equipment and/or machinery, while structural grounds refer to restructuring of current employees within the business. In the Motor Industry retrenchments are generally based on economic grounds.

Often, as an attempt to minimise retrenchments and to try and accommodate employees, the employer offers alternatives. This might be another position within the same company or the same position within the same group or with another employer.

It is important to note that if an employee accepts or unreasonably refuses to accept an offer of alternative employment, the employee’s statutory right to severance pay is forfeited.

The issue of reasonableness
Reasonableness is determined by a consideration of the reasonableness of the offer of alternative employment and the reasonableness of the employee’s refusal. When determining whether an offer – or a refusal – was reasonable or not, one must take into consideration factors such as remuneration, status, and job security as well as the employee’s personal circumstances.

Furthermore, it is important to note that retrenchment is considered as a ‘no fault dismissal’ – this means that the dismissal is not due to any fault of the employee and does not reflect negatively on the employee in any way.

Retrenchments are always a sensitive matter and it is vitally important that both the employer and the concerned employees take careful note of the requirements of the Labour Relations Act in this regard.

And as always, MISA is just a phone call away.

Article by Anel Strydom, Motor Industry Staff Association (MISA).

Return to main article