Since the start of the lockdown, due to the COVID-19 pandemic, many business owners have been tasked with taking difficult decisions for survival. Financial strain is at the top of the list of difficulties faced by small and medium businesses, or even the big corporates. Some business owners are already contemplating retrenchments due to the impact of COVID-19 on their businesses. However, employers should be aware that retrenchments are a matter of last resort and an option that can only be undertaken after exploring all alternative measures to avoid it.
Government has introduced a number of measures to minimise the impact of the COVID-19 pandemic on businesses. It is hoped that the measures will encourage and help businesses to stay afloat and, most importantly, avoid the retrenchment of employees. One important initiative is focussed on tax relief for businesses through the Disaster Management Tax Relief Administration Bill B12 of 2020 (the Bill). Once passed, the Bill will extend employment tax incentives, which were first introduced through the Employment Tax Incentive Act 26 of 2013. Incentives in terms of this legislation have been available to be claimed by employers in respect of qualifying employees between the ages of 18 and 29. The Bill aims to extend the benefit for the period 1 April to 31 July 2020, and doing with age limitations and ensuring that employers are incentivised to keep their workforce intact.
On 21 April, President Cyril Ramaphosa, announced an economic stimulus fund of R 500 billion to support businesses, subsidise wages and assist with creating new job opportunities. An amount of R 40 billion of the relief fund has been set aside as income support for those workers whose employers are unable to pay their salaries.
Although government has proactively put measures to prevent the loss of employment, retrenchments may be unavoidable for some businesses. Should that be the case, the law provides a procedure to be followed by an employer that is contemplating retrenching their employees. Before the employer embarks on the contemplated retrenchments, the employer should take the following facts into consideration:
- Employers are required to issue a notice in terms of s 189(3) or s 189A of the Labour Relations Act 66 of 1995 (the LRA).
- The written notice must set out the following –
– the reason for the proposed retrenchments, the alternatives considered by the employer before proposing the retrenchment and the reason 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 retrench;
– the time or period when the dismissals are likely to take effect;
– the severance pay proposed;
– the assistance being offered to the employees who are likely to be retrenched;
– the possibility of future re-employment;
– the number of employees employed by the employer; and
– the number of employees that were dismissed as a result of operational requirements in the preceding 12 months.
- There must be a consultation process with the employees, which –
– should be aimed at reaching a consensus on appropriate measures to avoid retrenchments;
– minimises the number of retrenchments;
– changes the timing of the retrenchments;
– mitigates the adverse effects of the retrenchments;
– addresses the method of selecting employees to be retrenched; and
– addresses the severance pay for the retrenched employees.
- It is not necessary to reach an agreement on the aforesaid issues, but the consultation must be held in good faith and all employee representations must be considered throughout the consultation process.
- An attempt must be made to reach an agreement on the criteria identifying the employees who are 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 severance pay for each completed year of service unless the employer has a more beneficial policy with regard to severance packages.
- In the case of large-scale retrenchments (s 189A) either party may request facilitation through the Commission for Conciliation, Mediation and Arbitration (CCMA).
- If a facilitator is appointed to assist with the consultation process, an employer may give a notice of termination of employment after 60 days have lapsed from the date on which the
s 189(3) notice was issued.
- If no facilitator is appointed, either party may refer a dispute to conciliation after 30 days have lapsed from the date of issue of the s 189(3) notice.
- No notice of termination of employment may be given before the expiry of 60 days from the date of the s 189A notice.
In some instances, these measures may not be enough and a company may be left with no alternative, but to consider the restructuring of the business or the rationalisation of their business, and the retrenchment of the employees. A failure to show a genuine need or rationale for retrenchment, or failure to properly consider alternatives, could result in unfair dismissals and the reinstatement of the employee and full back pay will have to be made.
The Disaster Management Act – regulations and directives
The Disaster Management Act 57 of 2002 and its regulations do not prevent an employer from engaging in a retrenchment process during the lockdown period. However, the employer must, even during the lockdown period, comply with the procedural requirements of ss 189 and 189A of the LRA before retrenching their employees. An employer must give written notice to affected employees and to their representative trade union once any retrenchments are contemplated.
The requisite notice should provide the detailed reasons for the restructuring and rationalisation and possible retrenchment of the employee, including the alternative consideration before engaging in the retrenchment process. The employer is further required to engage in a consensus seeking process by consultations. The employer must allow the other consulting parties an opportunity to make representations and the employer must consider and respond to the representations that are made. If any representations are made in writing, the employer must respond in writing. During the lockdown period, consultations can be made by e-mail, telephone calls and videos recordings. Recording of the consultations between the consulting parties may be made. The reason for this is that government is encouraging social distancing between people.
In conclusion it is clear that, the retrenchment process should be contemplated after the consultation and mutual agreement process between the employer and the employee, which enables both the employer and the employee to consider all possible remedies/options to be taken to avoid retrenchment. Both parties should try to mitigate the impact. It is further noted that the retrenchment procedure is laid down in the LRA and must be followed properly and in good faith by the employer. The employer must also prove that they have shared all the documentation and other information with the affected employees or their representatives regarding the retrenchment, to avoid unlawful procedure or unlawful dismissal of the employee.
This article was first published in De Rebus in 2020 (Aug) DR 7. By Ntsako Reginald Makhubele
Ntsako Reginald Makhubele LLB (University of Limpopo) is a legal practitioner at Makhubele Attorneys in Pretoria.