Retrenchment: Get it right or face legal exposure!

By liamarus, 13 June, 2013

When times are tough and revenues are slipping, companies are typically forced to look at cutting costs. Once all possible cut-backs in areas such as in training, travel and marketing have been made, companies inevitably start focusing on their biggest expense - labour.

SA labour law recognises it is necessary for businesses to make staff cuts to survive but it expects that this be done according to a fair process and for a fair reason. And if you, as a company, do not comply with the law’s expectations in this regard, you will find yourself not only facing the wrath of the law, but you could be saddled with fines and, even worse, with having to reinstate employees who you have spent a great deal of time and effort retrenching.

During 2012, a senior HR manager in a leading South African financial institution undertook a major retrenchment exercise without following a legal process, with serious consequences for his company, and subsequently for him.

7 Important steps in the retrenchment process

1.    According to the law, as soon as your, the employer, consider retrenchment - and before you select retrenchment as the final option - you must consult with the employees who will potentially be affected either through:

A union representative;

  • An employee representative body; or
  • The employees themselves.

 “Potentially affected employees” are not only those employees who you may have already earmarked for retrenchment!

2.    You must invite these employees – in writing – to a “joint, consensus-seeking” consultation to find ways of:

Avoiding retrenchments;  or (if this cannot be done)

  • Mitigating the impacts of such retrenchments.

Before you consult, you must have a valid business rationale for considering retrenchments. As part of the consultation process, you must share this rationale with your employees. 

3.    You must also be able to articulate the – fair and objective - selection criteria that you plan to use to select the employees who will be retrenched.

4.    In addition, you must be able to provide your employees with a number of other items of information which then form the basis for negotiation. These include the:

  • Reasons (the business rationale) for the proposed dismissals;
  • Alternatives you considered (and perhaps carried out) before proposing the dismissals, and why you rejected each of these alternatives (or the reasons why – if carried out – these were insufficient). Alternatives could include redeployment to other areas of the company, and/or voluntary separation, etc.;
  • Number of employees likely to be affected, and the job categories in which they are employed;
  • Proposed method for selecting which employees to dismiss;
  • Time when, or the period during which, the dismissals are likely to take effect;
  • Severance pay proposed (legal minimum is one week’s remuneration for each completed year of service);
  • Assistance you propose to offer your employees who are likely to be dismissed (e.g. partnership with an employment agency to find open vacancies);
  • Possibility of the future re-employment of dismissed employees;
  • Number of employees you employ; and
  • Number of employees you have dismissed for operational requirements, i.e. retrenchment in the preceding 12 months.

5.    As the employer, you must allow the other party (representative union, employees, etc.) adequate opportunity to make representations about any of the matters which form part of the consultation, including any matter relating to the proposed dismissals.

6.    You must consider and respond to any representations made, with reasons for not agreeing to these, if this is the case. You must respond to any written representations in writing.

7.    Ultimately, you must select the employees to be dismissed according to selection criteria agreed to by the consulting parties or - where no such agreement is reached - for fair and objective reasons. Remember: You may be called upon to justify the criteria you have selected at the CCMA or in the Labour Court.

This article first appeared on HR Pulse.



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