Retrenchments in brief
Every employee has the right not to be unfairly retrenched.
An employee is unfairly retrenched if the employer does not have fair reason for retrenching the employee, or if a fair procedure is not followed:
- Fair reasons for retrenching an employee are based on the employer’s operational requirements.
- A fair procedure is when an employee is informed of the reasons for possible retrenchment and then given the opportunity to prepare and to state his/her case in response to the reasons.
Retrenchment as ground for dismissal
Retrenchments take place due to operational requirements of an employer. Retrenchments are based on the economic, technological, structural or similar needs of an employer:
- Economic reasons relate to the financial management of an enterprise;
- Technological reasons refer to the introduction of new technology that makes existing jobs redundant; and
- Structural reasons relate to the redundancy of jobs due to restructuring.
Employers who retrench employees during the lockdown as a result of downsizing or because the work scope has decreased, retrench their employees for reasons based on operational requirements.
How should employers approach retrenchments?
Employers must in terms of Section 189(3) of the LRA, notify employees in writing that they intend to retrench employees for reasons based on operational requirements. Said notice must be delivered at least 30 calendar days prior to the intended retrenchments. This period will serve as the employees’ notice period.
The notification must set out:
- The reasons for the proposed retrenchments;
- The number of employees employed by the employer;
- The number of employees likely to be affected;
- The number of employees retrenched in the preceding 12 months for reasons based on operational requirements;
- The alternatives that the employer considered before proposing retrenchments;
- The proposed method for selecting which employees to retrench;
- The time when the retrenchments are likely to take effect;
- The severance pay proposed;
- The possibility of the future re-employment of the employees who are retrenched; and
- Any assistance that the employer proposes to offer to the employees likely to be retrenched.
It is critical that an employer does not present his decision as a foregone conclusion, leaving the employees with no option but to accept it. In terms of Section 189(2) of the LRA, the employer must invite employees to engage in a meaningful, joint consensus-seeking process in an attempt to reach agreement on appropriate measures to avoid retrenchments, to minimise the number of retrenchments and to change the timing of the retrenchments.
Attempts must further be made to reach consensus on a selection criteria for the employees to be retrenched and the severance pay for the employees.
Employers must approach the situation with an open mind. They must provide employees with an opportunity to change their mind, even though they may enter the consultation strongly favouring retrenchment.
A mechanical checklist approach will simply not do, as such an attitude might lead to a finding that the retrenchments were procedurally unfair.
Disputes regarding unfair dismissals or retrenchments must be referred to the relevant bargaining council of the industry. Examples of existing bargaining councils include, but are not limited to the Motor Industry Bargaining Council, the General Public Service Sector Bargaining Council, the Metal and Engineering Industries Bargaining Council; and the Bargaining Council for Hairdressing, Cosmetology Beauty and Skincare Industry.
Disputes regarding unfair dismissals or retrenchments where no council has the jurisdiction to hear the matter, should be referred to the Commission for Conciliation, Mediation and Arbitration (CCMA) for conciliation and/or arbitration.
Unfair dismissals or retrenchments must be referred within 30 calendar days from the date of dismissal or retrenchment.
If a party is aggrieved with a bargaining council’s ruling, the ruling can be taken on review to the Labour Court.
What can employees claim?
Should an employee be retrenched and it be found that the process was unfair, the employee can in terms of Section 194 of the LRA, claim a maximum equivalent of 12 months remuneration calculated at the employee’s rate of remuneration on the date of retrenchment.
A practical example of a procedurally unfair dismissal
In the case of Zeda Car Leasing (Pty) Ltd t/a Avis Fleet v Van Dyk (JA53/18)  ZALAC 4, Ms Van Dyk was dismissed for operational requirements, i.e. retrenched. Ms Van Dyk and her colleague, Ms Friebe, had a conflicting relationship. They were both managers of independent divisions at the same company. In order to solve the conflict, their employer merged their respective divisions and a new post for a manager of the combined divisions was created. Ms Van Dyk and Ms Friebe were advised to apply for the new position. A deadline for applications was given and the unsuccessful applicant was to be retrenched.
Ms Friebe applied timeously, but Ms Van Dyk elected to express her concerns about the procedural fairness of the process. According to her, the employer presented the retrenchment as a foregone conclusion. Moreover, there was no method for selecting which employee was to be dismissed. The requirement that employees compete for a post is not in itself a method of selection for retrenchment.
The employer took the view that Ms Van Dyk had de-selected herself, by not applying before the deadline. Notice was consequently given in terms of Section 189(3) of the LRA and a severance package was proposed, without further consultation about the method of selection for retrenchment.
The court found that the retrenchment was procedurally unfair, as the employer had already made its decision and as Ms Van Dyk was left with no option but to accept it. Most importantly, the retrenchment was found to be procedurally unfair as no proper consultation, as required in terms of Section 189(2) of the LRA, took place.
Are employees entitled to severance pay?
Yes, they are. In terms of Section 41(2) of the Basic Conditions of Employment Act, 75 of 1997 (BCEA), an employer must pay an employee who is retrenched for reasons based on the employer’s operational requirements, severance pay equal to at least one week’s remuneration for each completed year of continuous service with that employer.
An employee’s monthly remuneration is four and one-third times the employee’s weekly remuneration. The calculation is as follows:
- Monthly remuneration ÷ 4.33 = weekly remuneration (for every completed year of continuous service). For example, R20 000 pm ÷ 4.33 = R4 618.94 pw.
- An employee with a salary of R20 000 per month who completed 12 years of continuous service is entitled to the following severance pay: R4 618.94 x 12 completed years of continuous service = R55 427.28.
Note that an employee employed for less than a year is not entitled to severance pay.
Employees who refuse to negotiate
What often happens in practice is that employers, in an effort to reduce the loss of jobs and to avoid paying severance, offer alternative employment to an employee.
Employees beware! If an employer offers employees alternative employment and an employee unreasonably refuses to accept the offer, then an employee is not entitled to severance pay in terms of Section 41(4) of the BCEA.
In the case of Lemley v Commission for Conciliation Mediation and Arbitration and Others (PA6/2018)  ZALAC 6, Mr Lemley had completed 38 years of service. In light of his impending retrenchment due to operational requirements, an offer of alternative employment was made at the same level, but in another locality.
Mr Lemley refused the offer, but gave no reasons for doing so.
A revised offer was consequently made, but the revised offer was also refused without any reasons being provided.
In his judgment, Acting Justice of Appeal Savage remarked: “The import and purpose of s 41(4) is clear: an employee is not entitled to insist on being paid severance pay where he or she unreasonably refuses to accept the employer’s offer of alternative employment. There are compelling reasons why the legislature saw fit to limit the payment of severance pay in this manner. Not only does it incentivise an employer to provide alternative employment, but it also seeks to limit job losses on retrenchment.”
Notwithstanding Mr Lemley’s age and his years of service, the court found that his approach towards the offer of alternative employment was obtuse and unreasonable. The court upheld the CCMA’s decision that Mr Lemley be dismissed for operational reasons – without payment of a severance package.
In conclusion, employers and employees must treat one another, offers and counter-offers with respect. It is the key principle in all matters concerning the retrenchment of employees.
This article is intended for information purposes only and is a brief exposition of the abovementioned legal position. Mention is not necessarily made of all the finer nuances as set out in the abovementioned legislation. This article should under no circumstances be construed as formal legal advice. Contact VDT Attorneys for assistance in this regard. firstname.lastname@example.org