RETRENCHMENT GUIDELINES : INDEX

4.   A fair procedure for retrenchment

• Consult employees or their representatives
• Disclose relevant information in writing as required by s 189(3)
• If possible, reach agreement on whether to retrench, and if so, the details of the retrenchment
• If no agreement is reached and the employer still believes retrenchment is justified, implement the retrenchment fairly

4.1.   Consult employees or their representatives

4.1.1.   Who to consult with:

As soon as an employer contemplates retrenchment, the employer must in terms of s189(1) of the LRA consult -

• any party that has a collective agreement with the employer requiring it to consult; failing which -
• a workplace forum established under the LRA, if one exists, AND any registered trade union whose members are likely to be affected; failing which -
• the employees likely to be affected, or their representatives nominated by them.

Note that the above are written in cascading order of priority. So for example, if an employer has a collective agreement with a union that requires consultation, there is no need to consult further with a workplace forum or employees likely to be affected. In terms of s23(1)(d) of the LRA an employer is able to consult with a majority union and reach an agreement binding on all the employees in the bargaining unit, even if they belong to other unions.

We recommend, even when an employer has a collective agreement requiring consultation with a majority union, that any registered trade union whose members are likely to be affected should also be consulted. This should be on the understanding that if agreement is not reached with all parties, the employer has the right to conclude an agreement with the majority union that is extended to apply to all employees within that bargaining unit.

If the employer does not have a collective agreement requiring consultation, the employer should consult any registered trade union whose members are likely to affected.

If affected employees are not represented by a union, the employer should consult with the employees. If the employer has to consult a large group of employees, it may be advisable to suggest to them that they nominate representatives or a subcommittee to represent their interests. This should make the consultation process work better.

4.1.2.   What to consult about:

The consultation process is described in s189(2) of the LRA as a 'meaningful joint consensus -seeking process'. Its purpose is for the consulting parties to attempt to reach agreement on the following:

• Avoiding the need to retrench if possible;


• Minimizing the number of employees to be retrenched;


• The timing of the retrenchments;


• Mitigating the adverse effects of the retrenchments;


• Method for selecting the employees to be retrenched;


• Severance pay for retrenched employees.

4.1.3.   How to start the consultation process:

Whilst employees may have 'picked up' that there are operational problems, it may come as a shock to them that their employer is contemplating retrenchment. Without going into too much detail at this stage, we suggest the employer should start the consultation process with the relevant party(ies) by briefly giving the reasons for having to contemplate retrenchment (it may not be constructive to fully debate these issues at this early stage in the consultation process), and then outline the process that will be followed to allow proper consultation to take place. Employees or their representatives should be assured they will be consulted before the decision to retrench is finalized.

The consultation process would normally be conducted over a series of meetings, giving time for parties to reflect on issues and reassess their views. The urgency of the situation and the circumstances of each case will influence the pace and content of the consultation process.

4.2.   Disclose relevant information in writing

The employer is obliged to inform the consultation process by providing detailed written information to employees or their representatives. This should be done at an early stage in the consultation process (as soon after the initial meeting referred to in clause 4.1.3 above as possible), in order that this information may be used and discussed between the parties.

The LRA is specific in s189(3) about what information must be provided:

• the reasons for the proposed dismissals;
• the alternatives that the employer considered before proposing the dismissals, and the reasons 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 for selecting which employees to dismiss;


• the time when, or the period during which, the dismissals are likely to take effect;


• the severance pay proposed;


• any assistance that the employer proposes to offer to the employees likely to be dismissed;


• the possibility of the future re-employment of the employees who are dismissed;


• the number of employees employed by the employer; and


• the number of employees that the employer has dismissed for reasons based on its operational requirements in the preceding 12 months.

This is however not a closed list, and the employer should provide additional information requested, if it is relevant to the proposed retrenchments.

When one considers the list of required information under s189(3), it may seem to suggest that the employer is required to explain and justify its decisions already taken with regard to the retrenchments. It is important to realise this is not the case, and the tone of that communication is really important, in that it invites consultation on the issues proposed.

A draft s189(3) notice to a union (see Annexure C) has been provided as an example to assist employers in complying with these legal obligations. This would obviously have to be adapted to suit the circumstances of each case.

4.3.   Consider possible alternatives to retrenchment

Whilst this is not a closed list, the following options have been used before as alternatives to retrenchment, and are suggested to employers contemplating retrenchments:

• A moratorium on hiring new employees - a continuation of hiring employees while retrenching others will have to be carefully justified, such as on the basis of scarce or strategic skills.


• The elimination of overtime or Sunday work - both overtime and Sunday work are usually mutually beneficial because the employer gets more work done and employees can supplement basic wages. But if the product is not selling in a time of recession, overtime is an obvious place to look to make savings to prevent job loss.


• The transfer of employees to other jobs within the establishment or elsewhere - finding suitable alternative employment is a way of retaining skills.


• The implementation of an early retirement scheme


• The implementation of an incentivised voluntary resignation.


• The gradual reduction of the workforce to permit reduction by the natural attrition (turnover) of staff - this is a slower solution linked to a moratorium on hiring.


• The training or retraining of employees to permit them to take up other posts within the establishment.


• Granting extended unpaid leave or short-time or temporary lay-off


• A reduction in salary - this case be achieved in a variety of ways, from across the board reduction, to no overtime, to compulsory unpaid leave.


• Job sharing - it has been held that an employer is obliged to consider the viability of job sharing. The reason is that existing employees continue to earn some money rather than none which would be the case if they were retrenched.

4.4.   If possible, reach agreement on whether to retrench, and if so, the details of the retrenchment

If agreement is reached on issues such as those described in clause 4.1.2, it should be recorded in an agreement and signed by the parties. A draft retrenchment agreement with a union is provided as Annexure D. It should be adapted to cater for different circumstances.

Note: As mentioned before, s 23(1)(d) of the LRA enables an employer and a union to conclude a collective agreement which binds all employees (union members and non members), if the union has the majority of employees as members. It is important to clarify who is covered by any agreement reached.

4.5.   If no agreement is reached but the retrenchment is still justified, the employer should implement the retrenchment fairly.

The employer must allow the other party during consultation to make representations about any matter relating to the proposed retrenchments, and must consider representations made and respond to them. If the employer doesn't agree, reasons must be given. If the representations are made in writing, the employer must respond in writing in terms of s189(6)(b) of the LRA.

If the employer has fully consulted and agreement still has not been reached, the employer may at that stage decide to proceed with the retrenchment. When that stage is reached will depend on the circumstances of each case. As stated earlier, the urgency of the situation and the circumstances of each case will influence the pace and content of the consultation process, but generally a 'meaningful joint consensus -seeking process' must have been fulfilled.

In the absence of an agreed retrenchment process, the employer could face a legal challenge to the procedural and / or substantive fairness of any retrenchment implemented, to be decided through the dispute mechanisms in the LRA.

4.6.   Selecting employees for retrenchment

In the absence of an agreement, the employer must select employees for retrenchment using fair and objective criteria. Length of service is often considered the easiest and most objective criteria to use, provided that certain key skills may need to be retained. Applying 'length of service' as the criteria means that the last employees engaged are the first to be retrenched -ie 'last in, first out' or LIFO.

Note that the courts have found that 'bumping' forms an integral part of applying LIFO in retrenchment. Bumping can take 2 forms. Horizontal bumping occurs when a redundant employee displaces another employee with shorter service at a similar level. Vertical bumping occurs when a redundant employee replaces another employee with shorter service in a lower position within the organisation. Horizontal bumping assumes similar status, conditions of service and pay, while vertical bumping assumes a diminution in status, conditions of service and pay.

An employer applying LIFO must raise and discuss the question of bumping with parties during the consultation process. In the absence of any agreement on the issue, the employer must be in a position to justify its decision not to bump, or to bump either horizontally or vertically within a defined selection pool. Ultimately, any requirement to bump is a matter of fairness to the employer, the employee selected for retrenchment and the displaced employee.

4.7.   Severance pay

S41 of the Basic Conditions of Employment Act requires severance pay for every retrenched employee equal to at least one week's remuneration for each completed year of continuous service with an employer. This is a minimum requirement and parties may agree on additional severance pay if they wish.

Whilst 'continuous service' implies unbroken service, s84 of the BCEA provides that previous (broken) service with the same employer must be taken into account if the break between the periods of employment is less than one year. Remember also that in terms of s198B(10)(a) of the LRA, the termination of fixed term contracts of over 24 months will also result in severance pay having to be paid.

An employee who unreasonably refuses the employer's offer of alternative employment with that employer or any other employer, forfeits the right to severance pay in terms of s41(4) of the BCEA. What constitutes an 'unreasonable refusal' of an offer of employment? Each case would have to be judged on its merits taking into consideration the employee's stated reasons for refusal, but generally it may be unreasonable to refuse an offer of alternative employment on substantially the same terms and conditions of employment. For example, it may not be unreasonable to refuse an offer at a lower wage or status, or at a different locality requiring additional travel, or a position requiring night work when this was not previously required.

This means that there are 3 possible scenarios:

• When the employee unreasonably refuses alternative employment, the employee forfeits the right to severance pay;


• When the employee reasonably refuses such alternative employment, the entitlement to severance pay remains;


• When the employee accepts the alternative employment, the right to severance pay is forfeited.

4.8.   Termination of employment

An employee to be retrenched must be given written notice of termination of employment, whether or not the retrenchment has been agreed with employees or their representatives. A draft notice of termination (see Annexure E) has been provided. S37 of the BCEA provides for minimum notice periods notice of not less than 1 week if the employee has been employed for 6 months or less, 2 weeks if employed for up to a year, and 4 weeks for longer periods of employment.

S40 of the BCEA specifies what the employer must pay an employee on termination of employment. This includes any remuneration that has not been paid, any paid time-off that the worker is entitled to but has not taken, and any annual leave due. This is in addition to the severance pay described in clause 4.6 above.

Section 42 of the BCEA requires the employer to provide the employee on termination of employment with a certificate of service containing specified information. To assist employers, a draft certificate of service is attached to the notice of termination in Annexure F.

4.9.   Assistance for retrenched employees

Employers should provide whatever assistance to retrenched employees they are able to offer. The following are given as examples of the assistance employers should consider:

• Attempting to find alternative employment wherever possible for retrenched employees;


• Providing reasonable paid time off for employees to attend interviews with prospective employers;


• Providing or arranging training to enable employees to upgrade their skills or acquire new skills;


• Waiving employees having to work their notice periods, if they are required to commence employment elsewhere. They will then be paid up to their last day of working.

4.10.   Possibility of future employment

Employers should attempt to advise employees whether there are any prospects of re-employment at any future time. Employers could offer to keep records of all retrenched employees for a specified period eg two years. If during that period the employer needs to recruit new employees with similar skills to the retrenched employees, the employer could undertake to recruit from amongst the retrenched employees. Those with the longest service could be given the first opportunities for re-employment.

5.   Section 189A: Retrenchments by employers with more than 50 employees

Section 189A of the LRA provides additional (and more complicated) requirements that larger employers have to comply with, when retrenching significant numbers of employees. They would still have to comply with the requirements of s189, which should then be read in conjunction with s189A.

5.1.   Who does section 189A apply to?

Section 189A applies to those employers employing more than 50 employees, if the employer contemplates retrenching at least -

• 10 employees, and employs up to 200 employees;


• 20 employees, and employs 200 to 300 employees;


• 30 employees, and employs 300 to 400 employees;


• 40 employees, and employs 400 to 500, employees; or


• 50 employees, and employs more than 500 employees.

Section 189A also applies if the number of employees in total retrenched over the past 12 months together with the number the employer now contemplates retrenching, exceed the numbers specified above.

5.2.   The purpose of section 189A

Section 189A attempts to provide an additional procedure for larger retrenchments, that enhances the chances of an agreement being reached to either avoid the retrenchments or to minimize the damaging effect of the retrenchments. In the main, this is done by providing for the appointment of a CCMA facilitator at the request of the parties, who attempts to assist them reach agreement. We suggest to employers covered by s189A that they strongly consider requesting the appointment of a CCMA facilitator - depending obviously on the person appointed, the facilitator has the capacity to constructively assist the consultation process. Time periods are provided for this facilitation, during which the parties may not act unilaterally. If agreement is not reached, the employer may then give employees notice of termination due to retrenchment, and the employees have the option of pursuing lawful industrial action or referring the dispute to the Labour Court for adjudication.

Section 189A also tries to streamline the way in which the Labour Court deals with disputes, by creating different procedures for employees to challenge procedural fairness (ie how the retrenchment was done) and substantive fairness (ie the reasons for retrenchment).

5.3.   Outline of section 189A procedure

As stated, the procedure contained in section 189A is in addition to the procedure contained in section 189. The procedure outlined in clause 4 above is accordingly still applicable even when section 189A applies, and the procedure outlined in this clause has to be read in conjunction with the procedure in clause 4. A diagrammatical outline of the s189A procedure is reflected in Annexure A.

Presuming that s189A applies:

5.3.1.   The CCMA must appoint a facilitator to assist the parties in their consultations, if -

1. requested by the employer in giving written notice in terms of s189(3) of the LRA (discussed in clause 4.2 above); or


2. parties representing the majority of employees to be retrenched (eg a union), request the CCMA to do this within 15 days of receiving the s189(3) notice.

The LRA Form 7.20 must be used to request the CCMA to appoint a facilitator. This is available on the CCMA website - www.ccma.org.za. If the employer intends requesting facilitation, we suggest the employer should attach the Form to the section 189(3) notice given to employees or their representatives (discussed in clause 4.2 above), and fax a copy of the form to the regional CCMA office. Proof must be attached that it has been served on employees/ their representatives.

5.3.2.   If a facilitator is appointed:

1. The parties have 60 days from the s189(3) notice to attempt to reach agreement, with the facilitator's assistance, on issues related to the retrenchment. The facilitation would be guided by the Regulations for the Conduct of Facilitations in terms of S189A - In terms of clause 6(1) of those Regulations, a facilitator must conduct up to 4 facilitation meetings with the parties, unless the dispute is settled earlier or the parties agree to a lesser number of meetings.


2. If an agreement is not reached -
   • the employer may then give notice to terminate employment due to retrenchment (see Annexure E), and
   
   
   • the employees / union may give notice to strike, or refer a dispute over the alleged unfairness of the reason to retrench, to the Labour Court.

5.3.3.   If a facilitator is not appointed:

1. The parties have 30 days from the s189(3) notice to attempt to reach agreement on issues related to the retrenchment.


2. If this fails, either party may refer a dispute to the CCMA, which then has up to 30 days to assist the parties to reach agreement.


3. If an agreement is not reached within this period or the CCMA certifies that the dispute has not been resolved-
   • the employer may then give notice to terminate employment due to retrenchment (see Annexure E), and
   
   
   • the employees / union may give notice to strike, or refer a dispute over the fairness of the reason to retrench, to the Labour Court.

5.3.4.   If employees / the union wish to challenge whether the employer complied with a fair procedure -

1. they may refer a dispute under s198A(13) of the LRA to the Labour Court and ask for an appropriate order, which may include compensation, the reinstatement of retrenched employees, an order preventing the retrenchment or compelling the employer to follow a fair procedure.


2. Any referral to the Labour Court must be brought not later than 30 days after the employees were given notice of termination due to retrenchment. Provided that late referrals may be accepted if good reasons exist.

6.   Retrenchment checklist

Based on the guidelines above, we have compiled a Retrenchment Checklist (see Annexure A) to assist in implementing a retrenchment process that complies with the required legislation.