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The hovering sword of retrenchments, lay-offs or restructuring – call it what you will – can have a paralysing effect on employers and on employees. Companies must ensure that this traumatic experience is not exacerbated by hiccups, delays, errors or complications with the process and the calculation of severance payments.
The instinct is often to get this painful process over and done with as quickly as possible, says Arlene Leggat, president of the South African Payroll Association (Sapa). The Labour Relations Act (LRA) sets out the procedures for retrenchments and the Basic Conditions of Employment Act provides guidance on what has to be included when determining the severance package.
A company can only consider retrenchment of one or more employees if its economic, technological, structural or similar requirements justify the need to retrench.The processAnastasia Vatalides, head of Werksmans Attorneys labour and employment practice, says the LRA prescribes that the employer must disclose all the relevant information which the employees will require to consult effectively with the employer.
In the case of large-scale retrenchments, the act affords the employer and the employees the option of facilitation through the Commission for Conciliation, Mediation and Arbitration (CCMA). “The processes, in essence, require the parties to embark on a consultation process with a view to reach consensus on a number of prescribed issues, including whether there is in fact a need to retrench employees,” says Vatalides.
This consultation must begin as soon as the company “contemplates” a reduction of staff through retrenchments, says Leggat. However, in many instances the unions representing employees feel that as soon as the company starts consulting, they are not “contemplating” retrenchments anymore. They believe the company has already made the decision to let people go.
The process does not have to be acrimonious. Rather, it should be about engaging in “a genuinely consultative and transparent manner to find solutions that will work for everyone,” says Leggat. “It is possible.” She says employees must be provided with information relating to the reason for the retrenchments, what alternatives were on the table, why they were not chosen, and what the company is offering those employees who will be let go.
This offer includes the severance package, but it can also include upskilling, how and where to look for new employment, assistance with the updating of curriculum vitae’s and even how to navigate and use social media. The package Vatalides says the employer is obliged to pay all who have worked at the company for more than a year a severance package based on at least one week's remuneration for each year of completed service.
“If the employer has a practice or policy which requires the employer to pay more than the statutory minimum, or if the employer falls under the jurisdiction of a bargaining council which has prescribed a higher severance package, the employer is bound to pay the higher package,” she notes.“
An employer may only decline to pay an employee a severance package if the employee unreasonably refused to accept a reasonable alternative offer of employment with either the current employer or another employer.” Nonkululeko Mkwanazi, senior associate at Bowmans, says when an employee is voluntarily retrenched and signs an agreement waiving their rights to sue the company for unfair dismissal, their retrenchment package should be more attractive.“
In addition to the payment of accrued annual leave pay, notice pay, severance pay and any other contractually guaranteed amounts, the employee should be paid a gratuity. The amount of the gratuity is ultimately a matter for negotiation between the parties,” says Mkwanazi.
In order to calculate the value of the severance package, the employer must include the employee’s salary or wage, average overtime, shift and standby allowances, as well as travel allowances and commissions. It must also include the employer’s contribution to benefit schemes such as death, funeral, retirement and medical aid contributions, says Leggat. In other words, it must be calculated on cost-to-company and not only the salary, says Mkwanazi.
Companies: Stick to the rulesVatalides says employers may be tempted to avoid following some or all of the processes prescribed in the LRA.“However, this is, in our view, short-sighted given that if the employer fails to follow the processes prescribed in the LRA, this could result in the Labour Court or the CCMA reinstating retrenched employees without a loss of earnings. Alternatively, it can award retrenched employees compensation up to 12 months’ remuneration each.”
Mkwanazi points out that if the retrenchment was based on discriminatory grounds such as race, gender or sexual orientation, then the relief awarded is compensation up to a maximum of 24 months’ remuneration – calculated on cost-to-company. Furthermore, says Vatalides, if a company takes over another business and embarks on a retrenchment process it will bear the onus to prove that the retrenchments are triggered by economic, technological, structural or similar requirements and not the takeover (see box).
If found that employees have been retrenched purely as a consequence of a company having acquired the business as a going concern, those retrenchments could be found to be automatically unfair. “Automatically unfair dismissals are regarded by the LRA as particularly unacceptable and attract punitive consequences,” she says.
Consequently, an employee whose dismissal is found to be automatically unfair is entitled to a maximum of 24 months’ remuneration as compensation.The bottom line, for companies, is to ensure that there is a genuine operational requirement for retrenchments. It is also important for employers to consult in good faith and with an open mind so that employees are given a fair opportunity to consult, adds Mkwanazi.
This article originally appeared in the 12 September edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.
