Retrenchment: Seven Things an Employee Ought to Know!

The credit crunch and the worldwide recession that followed after the stock market collapse in the USA in September 2008 have profoundly impacted the workplace. South Africa, whilst not as badly affected as many other countries, has not been spared.

The union, Solidarity, has calculated that an excess of 35,000 jobs are currently under threat. Retrenchments are proposed and have taken place in all sectors. The mining, automotive and manufacturing sectors have been particularly badly hit. Other sectors, such as the media sector, have also not been unscathed. A significantly greater number of retrenchments will actually take place before the end of 2009. Each job lost to retrenchment may affect between 7 to 10 dependents and accordingly hundreds of thousands of people will ultimately be affected by such job losses.

It is important that both employers and employees understand the requirements of the Labour Relations Act and how employees’ rights are protected. All employees (and their employers) involved in a retrenchment should at least be aware of the following seven things:

1. An employer is obliged to consult with its employees when it contemplates dismissing one or more of the employees for operational reasons. Operational reasons include economic, technological, structural or similar needs of the employer. An employer may contemplate dismissing for operational reasons even if not any or all of the employees are eventually retrenched. An employer may not assume that an employee will accept redeployment/transfer within the company unless the employee is contractually obliged to do so.

2. An employer is required to provide its employees with a statutory notice in terms of section 189 (3) of the LRA which discloses in writing all relevant information relating to the proposed retrenchment prior to commencing the consultation process.

3. An employer must consult not only on the consequences of the proposed retrenchment but in respect of the business needs and to be able to show that all reasonable alternatives have been considered prior to contemplating the need for retrenchment. For instance, the fact that a South African employer's holding company in London or elsewhere has decided to restructure internationally to save costs is not of itself sufficient and the South African employer needs to make its own decision and contemplate dismissal for operational reasons prior to commencing the retrenchment process.

4. An employer must thereafter engage in meaningful consultation with its employees or their representatives in an attempt to achieve consensus. Meaningful consultation requires the employer to allow the employee or its representatives an opportunity during consultation to make representations about any matter connected with the proposed retrenchment and for the employer to respond.

5. An employer ought in most cases to apply the selection criteria of last in first out ("LIFO") subject to skills, qualifications and experience. It is the obligation of the employer to try and place potentially affected employees in the proposed new structure – on no account should existing employees be treated as applicants for employment. The possibility of "bumping" i.e. the employee seeking to "bump" an existing incumbent out of such job elsewhere in the company on the basis that the employee has a longer service also needs to be raised by potentially retrenched employees. The promotion of diversity may be used as a tiebreaker but not as a reason for retrenchment.

6. An employer is required to consult with potentially affected employees on what a reasonable severance package ought to be. Many employers have policies and past practices in this regard. The severance package cannot be less than one week's remuneration from each completed year of service. An employee would also be entitled to notice pay in addition.