September 2016 Newsflash


Retrenchment consultations - what's required?

Given the current economic environment, many organisations have had to contemplate retrenchments for operational reasons. The consultation process to attempt to avoid or minimise retrenchments, or failing that, to agree the terms of the retrenchments, often leads to a variety of proposals and counter proposals. Parties may then understandably focus their attention on the merits of the issues being discussed, and may lose sight of what's expected of them in terms of the LRA's requirements. The recent LAC judgment in Standard Bank of South Africa Ltd v Letsoalo (J18/2014) [2016] ZALAC 43 (27 July 2016) considers what constitutes proper consultation under s189 of the LRA.

What does the Act require?

Section 189(2) requires the employer and consulting parties to engage in a "meaningful, joint consensus-seeking process", and to attempt to agree on -

  • appropriate measures to avoid retrenchments or minimise their impact;
  • selection criteria for any retrenchments that do occur; and
  • severance pay for retrenched employees.

Regarding the consultation process, the LRA has this to say:

  • the employer must give the other consulting party an opportunity to make representations on any matters relating to the proposed retrenchments (s189(5));
  • the employer must consider and respond to any representations made, and if it does not agree with them, must give reasons why (s189(6)(a)); and
  • if representations are made in writing, the employer must respond in writing (s189(6)(b)).

Against the background of the above legal requirements, let's consider what happened in Standard Bank v Letsoalo.

The facts of this case.

The employee was the provincial foreign exchange manager of Standard Bank in Mpumalanga, reporting to the provincial sales manager. Due to the worsening economic climate, her position was one of those identified as 'non critical' by the bank. She was a member of SASBO, the representative union at the work place.

Prior to embarking on the retrenchment process, the Bank consulted with SASBO regarding possible dismissals due to operational requirements. An agreement was reached on the procedure to be followed, in terms of which all employees identified as occupying non critical positions were to be placed on informal redeployment for six months. If a suitable position was not identified during that period, the employees would be placed on a further informal redeployment process for two months. If there were still no suitable positions available, the employees would be issued with letters of termination at the beginning of April 2012, with their services to terminate on 30 April 2012.

In Mpumalanga four positions, including this employee's position, were identified as non critical. Subsequent to the consultation with SASBO, the Bank consulted individually with the affected employees in terms of the agreement with SASBO. The consultation with this particular employee was done through the provincial sales manager. She applied for various positions, but was unsuccessful. On 23 April 2012, she was offered a position with the Company's business banking section as an accounts analyst, at a lower salary than she was currently earning. She rejected the offer and on 30 April 2012 was dismissed for operational requirements.

The employee referred an unfair dismissal dispute to the Labour Court, challenging the procedural fairness of her dismissal. She alleged she had not been properly consulted in terms of s189 before being retrenched.

Labour Court's views

The LC focussed on the interaction between management and the employee relating to the alternative position offered to her at a lower salary, her response to this offer, and whether during this process management complied with its obligation to consult under s189 of the LRA.

The alternative position offered to her was at a salary of R379 484 per annum, R6 187 per month lower than what she was currently earning (R453 737 per annum). Although she initially miscalculated the reduction she would have to accept in this alternative position, she made it clear she was not prepared to accept a reduction of more than R4 000 per month. E-mails crossed between the parties discussing this matter, it was discussed telephonically between them, and at least 2 meetings were held between the employee and her manager in an attempt to reach agreement.

Management made it clear that the remuneration offered to her was at the maximum level applicable in that job grading band and that it could not offer more, and that if she failed to accept it she would be retrenched. The employee at all times responded that she could not accept the salary reduction proposed. In her final e-mail on 26 April before being retrenched, she again declined the position and suggested her salary be cut by no more than R3 311 per month. Whilst management did not reply to this e-mail, her manager phoned her on 27 April in a further attempt to persuade her to accept the offer. The employee again rejected it and she was retrenched on 30 April.

Taking into account the requirements of s189(6) summarised above (namely that the employer must consider and respond to representations made, and if it does not agree, must give reasons why; and if written representations are made, the employer must respond in writing), the LC found that the employee had not completely rejected the offer made to her and had effectively made a counter offer that her remuneration be reduced by a lesser amount. The LC said there was no evidence that the employer had considered this counter offer, and accordingly found that the employer had not complied with its obligation to consult under s189. On this basis the LC found that her retrenchment was procedurally unfair, and ordered the employer to pay her 12 months' salary as compensation.

On appeal to the LAC

On appeal, the LAC did not agree with the LC's views on the consultation process that took place between the parties, and whether this complied with the requirements of s189. The LAC rejected the LC's view that the manner in which the Bank had consulted with the employee was procedurally unfair, and said that two well-settled principles established by previous cases must be applied:

  • Firstly, courts will not assist employees who refuse to accept reasonable alternative positions;
  • Secondly, courts will not find against employers who provide a reasonable explanation for not accepting alternatives proposed by employees or their unions.

The Court found that by the time the employee sent her last e-mail before being retrenched on 26 April, in which she again rejected the alternative position offered to her and proposed that her salary be cut by no more than R3 311 per month, it was clear the parties held irreconcilable views on the matter. The Bank had made it clear they could not offer her a higher salary, and she had made it clear that she would not accept the position unless they did so. It would therefore have been an exercise in futility, the LAC said, had the Bank responded to her final e-mail: it would have simply reiterated its earlier position that there was nothing more it could offer her in terms of salary in the alternative position.

The LRA requires consultation, not futile engagements, the LAC said, and stated that the LC had placed "form above substance" by concluding that the dismissal was procedurally unfair simply because the employer did not respond to the employee's last e-mail, despite the extensive and exhaustive consultations that had preceded it.

The LAC found that the employee was clearly ill-advised and unreasonable in rejecting the alternative position offered to her, and that the Bank had provided a reasonable explanation for not accepting the alternatives she proposed. The LAC overturned the LC's judgment and found that the Bank had acted procedurally fairly in retrenching the employee.

What can we learn from this judgment?

We think the LAC's overall assessment of the consultations that took place in this matter between employee and employer was correct: there had been a 'meaningful joint consensus-seeking process' and a genuine attempt by the parties to reach consensus on matters relating to the retrenchment, as required by s189(2) of the LRA. We agree that it would have placed 'form above substance' to judge the fairness of the parties' actions solely by whether the employer had responded in writing to the employee's last e-mail, as could be argued by the somewhat mechanistic requirements of s189(6).

We are encouraged by the practical approach adopted by the LAC in assessing whether there had been proper compliance with the consultation requirements of s189. This judgment provides a yardstick for other employers to assess at what stage they have fulfilled their obligations to consult, before going ahead with retrenchments.

Bruce Robertson
September 2016
Copyright: Worklaw