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Unemployment and Retrenchment in South Africa

Unemployment and Retrenchment in South Africa

Labour Direct

The past 10 years have seen major changes in the South African labour market due to the fluctuating economy. This has given rise to a colossal increase in the number of labour related disputes referred to the Commission for Conciliation, Mediation and Arbitration (CCMA) and Labour Court, mostly as a result of unfair dismissals and retrenchments. Without the luxury of an internal HR Manager, many small and medium-sized business owners often find the industrial relations jungle of employment law, a confusing place. With many available legal options, it is often exceptionally difficult to separate accurate and trustworthy labour advice from dubious labour law consultants or costly ill-informed attorneys. When dabbling in the twilight zone of “retrenchments”, there is a never-ending showcase of labour legislation acronyms and legal opinions when trying to find sound labour law advice. Never fear - Labour Direct is here to assist you.

In the last year, approximately 60 000 employees lost their jobs due to operational requirements (aka retrenchment) and subsequent layoff processes. We need to consider that the reduction of our workforce must be seen in comparison to the number of job opportunities available in the current unemployment crisis in South Africa. As you are well aware, South Africa is a developing country facing socio-economic instability and political unrest.

According to Statistics SA (2018), the unemployment rate in South Africa has increased in the second quarter of 2018 to 27.2%, resulting in the number of unemployed individuals rising to a whopping 6.08 million. In contrast, the number of employed individuals is only reflected by 16.29 million of our population. As addressed at the 23rd Annual NEDLAC Summit held on 14 September 2018, Deputy President David Dabede Mabuza stated:

“As you are aware, we meet at a time when revenues are declining. The Minister of Finance has budgeted for a VAT increase, with SARS indicating negative revenue collection outcomes. We have encountered an economic decline in the last two quarters showing successive decline. Our inflation outlook is increasingly perilous, the effect of VAT increase, rand dollar exchanges and high fuel prices are beginning to impose their weighty implications. Both consumer and business confidence is showing strain.”

With the above address in mind, embarking in any form of operational requirements in terms of the Labour Relations Act (as amended), should be dealt with in an extremely delicate manner and should not be initiated without proper care and regard for the true purpose of the retrenchment process. Courts have become exceptionally harsh on employers using this process to rid the workplace of unwanted and disliked employees. However, should you own an embattled business which does not foresee any major positive changes in your status quo, however sad it could be, you have the right and responsibility to lay off staff.

The two most important pieces of legislation that come into play when dealing with operational requirements are the Labour Relations Act (LRA) and the Basic Conditions of Employment Act (BCEA). Retrenchments are dealt with in two sections, one section dealing with employers employing less than 50 employees and the other, for employers with more than 50 employees. For the purposes of this article, we will be focussing on employers with less than 50 employees.

Considering the procedural requirements, it is of paramount importance that employers comply with section 189(3) of the LRA, to ensure that a fair process is followed. The starting point is providing written notification of the impending retrenchments to your employees and/or “consulting party”.

According to legislation, a consulting party is defined as:

  • Parties mentioned in a collective agreement;
  • A workplace forum;
  • A registered trade union of the affected employees; or
  • The employees and/or their representatives.

This notification will, amongst others, disclose relevant information required for a “meaningful-joint-consensus-seeking process”. An example of information required from you will include the following points:

  • The reasons for retrenchment, be it economical, technological or structural;
  • The alternatives the employer considered prior to proposing dismissals as a result of the retrenchment, and the reasons for rejecting each of those alternatives;
  • The reasons for identifying the specific selection criteria used for selecting which employees to dismiss (e.g. LIFO- “Last in First out”, skills, etc.);
  • The number of employees likely to be affected and the job categories in which they are employed;
  • How many employees are likely to be retrenched;
  • How many employees were retrenched in the previous 12 months;
  • The time/period during which the retrenchments are likely to take effect;
  • The severance pay proposed;
  • The assistance the employer intends to give retrenched employees; and
  • The possibility of future re-employment.

As this is a joint process between the employer and the relevant consulting parties, the consulting parties must be provided with an opportunity to respond to the abovementioned retrenchment notice. In the event that this response is tendered in writing, it is the employer’s duty to provide a written response, stating whether or not the employer is in agreement or disagreement with the points raised. Should the employer disagree, reasons for said disagreement must be provided. As “interaction” is required in this process, we recommend that you hold at least two meetings with the consulting parties.

During these meetings, the employer and the consulting parties must consult and attempt to reach resolution on the following aspects:

  • Avoiding or minimising the number of retrenchments;
  • Changing the timing of retrenchments;
  • Reducing/mitigating the effects of retrenchments; and
  • Severance pay for dismissed employees.

As discussed above, you must consult on severance pay. Section 41 of the BCEA states that an employer must pay an employee who has been dismissed for operational requirements severance pay, equal to at least one week’s remuneration for each completed year of continuous service with that employer. This calculation may be overwhelming as one must consider remuneration must be calculated in accordance with section 35 of the BCEA. Any miscalculation may end up in front of the Labour Court for scrutiny.

It is important to note that employers employing more than 50 employees are required to follow additional requirements in terms of section 189(A) of the LRA. In essence, the compliance with these additional requirements involves the facilitation and involvement by a Commissioner at the CCMA. We strongly recommend that should you find yourself in this position, you opt for the assistance of a labour law specialist.

As daunting as this general process of operational requirements is, there are alternative options other than attempting the retrenchment procedure that is often overlooked. One may consider an exercise in reducing overhead costs, by relocating to smaller premises and cutting down on luxuries in the business. You may also consider offering retirement packages to those employees that have reached or are approaching retirement age. A further alternative is to cut down on overtime and implement short time in the workplace. You may also consider outsourcing your cleaning/gardening service or reshuffling of duties and resources in the workplace.

Another factor that many employers fail to consider in this process is the emotional impact on the employees. As stated earlier, the rate of unemployment in this country far exceeds the rate of employment. Thus the fear of not being able to support your family has a real impact on the tension and stress caused by this process. As this process is termed a “no fault dismissal” it is often difficult for an employer to remain impartial when considering an employee’s personal circumstances and the impact the process will have if the employee is dismissed. In light of the above, it is often easier to use the services of a labour specialist to facilitate this process.

Throughout this article, we have been clear that the retrenchment process is complicated and tricky with many considerations and requirements envisaged by our labour legislation. The reality that rests on the employer to ensure that the process is procedurally correct is overwhelming and was clearly shown in the case of NUMSA obo Members vs Kenco Engineering CC (JS947/11) [2015] ZALCJHB 390 (11 NOVEMBER 2015). In this case, the employer retrenched 19 employees as a result of economic needs. During the retrenchment procedure, the employer failed to properly consider fair and objective selection criteria, and after a lengthy battle in the Labour Court, the presiding judge ruled in favour of the employees. The employer was directed to pay a hefty sum of R548,789.40.

In light of the possible risk, we strongly recommend that you sidestep the “ill-advised” attorneys and the midnight Google searches on this topic, and rather approach a labour specialist for further advice. Should you have any further questions, please do not hesitate to contact our offices directly.

Disclaimer: The author of this article takes no liability for the implementation of the advice provided in this article, without a formal discussion and/or consultation with one of our consultants.

Unemployment and Retrenchment in South Africa

Labour Direct

Labour Direct is an industrial relations and human resources specialist company with a national footprint, committed to bring first class labour solutions through HR and IR services. Labour Direct strives to ensure effective compliance with legislation and endeavours to build long-term relationships...

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