Can an employer consider retrenchments due to Covid impact?

by Lucy Phillips. You may have been forced to contemplate retrenchments due to the impact of COVID-19 on your business. Employers should however be aware that retrenchments are a matter of last resort and can only be undertaken after exploring all alternatives seeking to avoid retrenchment.

The temporary regulations passed by the Government to deal with the impacts of COVID-19 have not made an allowance for an employer to skip the retrenchment process set out in the Act and retrench employees without due process. It is therefore imperative that the correct processes as set out in section 189 of the LRA are followed if you are considering retrenchment.

Whilst time is more than likely of the essence if you are considering retrenchments as a result of the impact of COVID-19 on your business, here are six things to know before embarking on retrenchments:

1. You will need to issue a notice in terms of section 189(3) or section 189A (if you have more than 50 employees and are contemplating retrenching 10% or more of your workforce) of the Labour Relations Act.

2. The written notice must set out, amongst others:

• The reasons for the proposed dismissals; the alternatives considered by the employer before proposing retrenchments 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 of selecting which employees to dismiss.
• The time or period when the dismissals are likely to take effect; the severance pay proposed; the assistance offered to employees likely to be dismissed; the possibility of future re-employment; the number of employees employed by the employer; the number of employees that were dismissed as a result of operational requirements in the preceding 12 months.

The retrenchment process includes a consultation process with employees; aimed at reaching agreement on alternative measures to avoid retrenchment, minimise the impact and number of retrenchments, agree on the selection criteria of employees for retrenchment and disclose and consult on the possibility of re-employment. It is not necessary to reach agreement with employees on the above issues, but the consultations must be in good faith and all employee representations must be considered during the consultation process.

An attempt must be made to reach agreement on the selection criteria identifying employees to be retrenched. If no agreement has been reached, the selection criteria adopted must be fair and objective – the most common being ‘last in, first out’, subject to skills, qualifications and experience.

Employees are entitled to a minimum of one week’s retrenchment pay for each completed year of service unless there is a more beneficial policy on retrenchment benefits.

A failure to follow the process of retrenchment as per the Labour Relations Act could lead to mass unfair dismissal claims against a company, which would naturally further cripple the business during this period.

Are there alternatives to retrenchment?

It is unknown how long the COVID-19 crisis will continue; it is anticipated to be temporary and the impact on business may also be temporary. Accordingly, to protect a business whilst it recovers from the impacts of COVID-19, temporary employment measures should be considered first before resorting to retrenchment. Some examples of alternative measures are as follows:

• Temporary remote working arrangements if possible.
• Special leave if a company can afford to grant such an indulgence.
• Utilising annual leave.
• Utilising short term measures of placing employees on short time work, or where this isn’t possible, temporary hibernation/lay off. Please take note that measures such as implementing short time work, for example, cannot be unilaterally imposed on employees. If the employee’s contract of employment does not make provision for short time work, then the employer must first consult with employees in respect of short time work and an agreement must be reached between the employer and employee in this regard. If no agreement is reached and an employer unilaterally enforces short time work on its employees, this could result in a unilateral change to the terms and conditions of employment, giving rise to a CCMA claim.

What if I need to hire employees after the pandemic?

It is important to bear in mind that if you elect to retrench employees during this period and your business recovers from the pandemic requiring you to recruit employees, the following steps need to be taken:

1. If you reached an agreement with your employees relating to re-employment, make sure to look at the agreement you reached with your employees at the time of retrenchment and act in accordance with this agreement. Failure to do so will result in unfair labour practice
2. Do not engage in selective re-employment of retrenched employees. Section186(1)(d) of the Labour Relations Act requires that where an employer, which has retrenched a number of employees for the same or similar reasons, offers re-employment to one or more of the previously dismissed employees, but refuses to re-employ another; such refusal shall constitute a dismissal. Where an employer is contemplating re-employment of a dismissed or retrenched employee and another employee who was dismissed or retrenched for the same or similar reason tenders their services; they should be afforded the opportunity to state why they should be re-employed and a refusal to re-employ him/her should also be for a fair reason.

Lucy Phillips heads up Consilium Legal, after founding the company with Natalie Laurencik in 2012. As a specialised consultancy, Consilium is focused on the commercial aspect of its clients’ businesses, such as commercial, corporate and advisory work. Having previously worked at FNB, where she was Legal Contracts Manager, and as Head of Legal (procurement) at Rand Merchant Bank; Phillips has extensive experience and expertise in staff training and continuing education on data privacy; consumer protection; roles and duties of directors under the Companies Act 2008 and the laws relating to social media.

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