Large-scale retrenchments could occur throughout 2023, as economists predict a 45% chance of a recession in South Africa.

According to Hugo Pienaar and Abigail Butcher at Cliffe Dekker Hofmyer (CDH), a recession would come at the worst time for South Africa’s economic recovery after the Covid-19 pandemic – with struggling businesses the most likely to be affected.

In the event of a recession, employers will likely have to embark on major retrenchment exercises to ensure that the majority of the workforce remains employed and to protect the fiscal sustainability of the business.

The legal experts said that “a retrenchment can only be embarked upon for genuine operational requirements. This means for economic, technological, structural or similar reasons.”

They add that in a restructuring exercise, there is only a duty to consult, not negotiate – this distinction is key as it affects the rights of the employer and the employee.

However, a standard error employers make approaching employees and unions with a fait accompli (a decision made by an authority on behalf of the people affected by the decision). The notice of retrenchment only invites consultation on the impact of the retrenchment.

Unions and employees should be afforded the opportunity to present a proposal regarding an employer’s decision to undergo retrenchments before making any final decision, said Cliffe Dekker Hofmeyr.

Retrenchment should not be a tick-box exercise for employers; they should consult with unions and, where applicable, employees. If the employer rejects the proposals unions and employees make, then they should explain why.

Importantly, employers cannot use retrenchments to address pre-existing issues, such as poor performance or misconduct.

In addition, employers need sound, objective criteria for retrenching employees. Subjective criteria can lead to further litigation and unneeded workplace friction.

The selection criteria must be objective and should not simply be ‘last in, first out.’ Objective selection criteria can ensure that the most qualified/skilled workers are retained – particularly at the senior level.

Furthermore, employers must present their rationale for the retrenchment in relation to disclosing financial records. If the retrenchments are linked to economic reasons, then the employer must provide financial information in the most confidential way possible.

However, if the retrenchment is not due to financial reasons – such as restructuring – then the employer does not necessarily have to disclose financial information. They will, however, be expected to provide operational information.

Remuneration is also a contentious issue faced when undergoing retrenchments. Employers are obliged to pay the minimum severance package – one week’s remuneration per year served is relatively standard.

Pienaar and Butcher add that employers should, but are not required to, offer training to retrenched employees at accredited training institutions, as it will give retrenched employees further skills.

Source: | By: Luke Fraser


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