Retrenchments

                   

Employers must be very careful with retrenchments - otherwise you could end up in the Labour Court, with a judgment stating that you must reinstate the retrenched employees, or pay them hefty compensation, and in addition pay all their legal costs. The most common element that lands employers in the Labour Court seems to be the reason for retrenchments. Procedurally, retrenchments are not a problem - the procedure is clearly laid down step-by-step in section 189 and 189A of the Labour Relations Act.

 

Provided that the employer follows that procedure - even if it may seem a bit onerous or time consuming to do so - the employer would not be found lacking on procedural fairness. The reason (substantive fairness) for retrenchments is another matter altogether, and is  extremely important . It must be a reason based on the employer's operational requirements . It must be a reason that is fair, lawful, reasonable under the circumstances, justifiable (provable) and based on sound business rationale.

 

Employers who face the Labour Court are those who did not have a proper or justifiable  reason for retrenching. Employers must give very careful thought and consideration to the reasons for the retrenchment/s. As recently as October last year ( refer Aiery & other v GE Security C218/06 LC) a company embarked on a restructuring exercise. Employees were instructed to reapply for jobs within the new structure - they could apply for as many posts as they wished to. Three senior managers did not follow this procedure  - their viewpoint was that the company should have consulted in more depth than it had.

 

They were not reappointed in any post and were retrenched. The three engineers referred their complaint to the Labour Court. The Labour Court agreed that the company was entitled to proceed with its plan for filling posts with suitably qualified employees who had applied for the posts. However, the Labour Court ruled that the substantive unfairness arose because the company did not reappoint the three engineers to their existing posts within the new structure, and although the 3 did not apply for any posts at all, the Labour Court felt that the employer should still have considered them for other posts for which they might have been suitable.

 

In other words, although it is common practice among employers to say to employees "you must re-apply for your job (or for another post within the organization ) but if your application is unsuccessful you will be retrenched ," the Labour Court does not agree with this approach  - at least they did not agree with it in the case mentioned. It seems to be that the intention of the Labour Court in this judgment is to say that employers must consider whether employees may be suitably qualified for a post other than those that they applied for, or even other than those that they did not apply for, or consider whether they should be kept on within the new structure in their present posts, even if they did not re-apply for their present posts.

 

It is well known that some unscrupulous employers (fortunately they are in the minority) allege that they are restructuring, they then instruct employees "to reapply for your job and if your application is not successful you will be retrenched." These unscrupulous employers use this approach purely as a disguise to dispose of poorly performing employees, or employees with bad attendance records, bad disciplinary records and so on.

 

The truth is that it was never a restructuring exercise in the first place - it was merely an exercise to dispose of certain undesirable employees by taking what the employer considered to be "the easy way out." This is one of the reasons why the Labour Court submit that even if an employee does not apply for his own post or for another post within the organization, he must still be considered for placement in another post or retention in his existing post.

 

In another case, the employer maintained that the reason for retrenching a particular employee was linked to its financial losses over the past recent years. They could not, however, prove to the satisfaction of the Labour Court that their financial losses justified retrenching this employee - the retrenchment was ruled to be unfair. Employers must be able to show that the need to retrench is justified by a sound and objective business rationale.

 

If an employer is retrenching for financial reasons - and this is usually the case - the employer must be able to actually prove that there is a connection between his financial constraints and the need to retrench. Employers must also be prepared to show the basis on which certain employees were selected for retrenchment and others not. In other words, employers must be able to show what savings would be achieved by retrenching the selected employees and so on.

 

When it comes to retrenchment, employers are strongly advised to seek professional assistance. Damage control never works - do it to correctly from the beginning  - and you will not have a need to introduce damage control.

 

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