employee retrenchment guidelines

Employee Retrenchment guidelines

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Dismissal on the basis of Operational requirements

In South Africa, our Labour Law is regulated by the Basic Conditions of Employment Act, 1997 (“the BCEA”) and the Labour Relations Act, 1995 (“LRA”).

In terms of the LRA, a dismissal of an employee must be substantively and procedurally fair. In this guideline we have discussed dismissal on the basis of operational requirements (retrenchments) where the number of employees are less than 50.

Definition of Operational Requirements

“Operational requirements of an employer” is defined as “requirements based on the economic, technological, structural or similar needs of an employer”.

Economic difficulties experienced by the enterprise may result in retrenchments, while the introduction of new technology or the restructuring of the workplace often result in the redundancy of posts. In both instances the employee is not blameworthy and the employer is required to follow prescribed procedures to terminate the services of an employee.

These procedures aim at “looking after” employees as they did not contribute to the reason for their dismissal.

Required retrenchment procedure

Consultation

As set out above, in order to dismiss an employee/s are on the basis of operational requirements, the employer must follow a fair procedure. In this regard, the LRA requires that all consulting parties reach consensus on the items as listed in the LRA. Section 189(2) requires an employer and the other consulting parties to engage in a meaningful, joint consensus-seeking process and attempt to reach consensus on the method for selecting the employees to be dismissed.

What are the categories of people with whom an employer must consult when contemplating dismissal on the basis of operational requirements?

In terms of s189(1), an employer must consult with:

  • any person an employer is obliged to consult with in terms of a collective agreement;
  • if there is no collective agreement, a workplace forum (if in existence) and any registered trade union whose members are likely to be affected by the proposed dismissals;
  • if there is no workplace forum, any registered trade union whose members are likely to be affected by the proposed dismissals; or
  • if there is no such trade union, the employees likely to be affected by the proposed dismissals or their representatives nominated for that purpose.

NOTE: Consultations with trade unions must take place where applicable, regardless of whether it is a majority trade union (Food And Allied Workers Union and Others v Cape Hospitality Services (Pty) Ltd t/a Savoy Hotel (C419/2007) [2015] ZALCCT 51).

What must be discussed during the consultation

s189(2) of the LRA provides that the consulting parties must attempt to reach consensus on the following matters:

  • Avoiding dismissals
  • Appropriate measures to minimise the dismissals
  • Measures to change the timing of the dismissals
  • Appropriate measures to mitigate the effects of retrenchments
  • The method for selecting the employees to be dismissed
  • Severance pay

Notification of the Retrenchments

s189(3) of the LRA requires the employer to disclose in writing to the employees (consulting parties) all relevant infromation including but not limited to:

  • The reasons for retrenchment
  • Alternatives considered and the reasons why they have been rejected
  • The number of Employees likely to be affected
  • Proposed methods of selection
  • Assistance that the employer will be offering
  • Possibility of future re-employment

Opportunity for Feedback

The Employer must allow the other party to make representations.

Selection criteria

S189(7) of the LRA provides that employers may select employees to be retrenched according to the criteria agreed upon by the consulting parties. If no criteria have been agreed, then the selection criteria must be fair and objective. LIFO (Last in First out) is most often applied.

Termination

The employer shall give notice of termination to those retrenched employees after the consultation process has been completed.

Severance Pay

In the event that employees are retrenched, the employees are entitled to severance pay. In terms of s41 of the BCEA, an employer must pay the employees dismissed on the basis of operational requirements “severance pay equal to at least one week’s remuneration for each completed year of service with the employer.

Payments

The employer must pay:

  • Severance pay
  • Leave pay
  • Notice pay