Self-Study Notes: Retrenchment PDF

Self-study Notes: Retrenchment Read ss 188(1), 189, 189A, 191(5) and 213 (definition of ‘operational requirements) of the LRA and ss 41 and 84 of the BCEA Geography of retrenchment law: Section 188(1) of the LRA provides three reasons that would render ‘ordinary’ dismissals fair, one of which is t...

Self-study Notes: Retrenchment Read ss 188(1), 189, 189A, 191(5) and 213 (definition of ‘operational requirements) of the LRA and ss 41 and 84 of the BCEA Geography of retrenchment law: Section 188(1) of the LRA provides three reasons that would render ‘ordinary’ dismissals fair, one of which is the operational requirements of the employer (retrenchment). In the case of misconduct and incapacity dismissals, apart from s 188, there are no other provisions in the LRA specifically dedicated to these two forms of dismissals. However, there are two further provisions in the LRA dedicated to operational requirement dismissals. The first is s 189, providing general regulation, and then there is also s 189A which regulates so-called ‘large-scale retrenchments’ and applies when employers, employing more than 50 employees, contemplate retrenching a certain number of employees. In the case of misconduct and incapacity dismissals, Schedule 8, the Code of Good Practice, Dismissal, provides further guidance. This code does not apply in the case of retrenchments. In the case of retrenchments, the Code of Good Practice on Dismissal Based on Operational Requirements published in 1999 (1999 Code), applies. A copy is available under Resources/Week 5. Facilitation guidelines (Regulations for the Conduct of Facilitations in Terms of Section 189A) have also been published that apply in the case of large-scale retrenchments. A copy is available under Resources/Week 5. Section 41 of the BCEA regulates severance pay and s 84 of the BCEA determines length of service of an employee. (Regarding the latter also see notes Resources/Tutorial.) Item 2 of the 1999 Code emphasises that retrenchments are no-fault dismissals. In other words, it is not the employee who is responsible for the termination of employment. In the case of incapacity and misconduct dismissals, the employee is the origin of the problem, but in the case of retrenchments, the operational requirements of the employer are causing the retrenchment. Because of this, and the human cost associated with job losses, the LRA places a number of procedural obligations on an employer in the case of retrenchment. Most of these obligations aim to ensure that all possible alternatives to dismissal are explored, and further that affected employees are treated fairly. In terms of Section 213 of the LRA, operational requirements mean requirements based on the economic, technological, structural or similar needs of an employer. More guidance about this is provided by item 1 of the 1999 Code: As a general rule, economic reasons are those that relate to the financial management of the enterprise. Technological reasons refer to the introduction of new technology which affects work relationships either by making existing jobs redundant or by requiring employees to adapt to the new technology or a consequential restructuring of the workplace. Structural reasons relate to the redundancy of posts consequent to a restructuring of the employer's enterprise. Can an employer retrench because it wants to make more profit? The answer is counterintuitive, but in Fry's Metals (Pty) Ltd v NUMSA (2003) 24 ILJ 133 (LAC), the LAC confirmed that it is permitted. The court indicated that the LRA:  ‘recognizes... an employer's right to dismiss for a reason based on its operational requirements without making any distinction between operational requirements in the context of a business the survival of which is under threat and a business which is making profit and wants to make more profit.’ However, when employers retrench simply to make more profit, the courts have been quite adamant that employers have a more onerous obligation to consult over alternative employment, to accommodate affected employees or even to delay the retrenchments. Retrenchment and fairness: Generally, a fair dismissal has two legs: substantive fairness and procedural fairness. It is no different in the case of retrenchment. Substantive fairness in the case of retrenchment requires the dismissal to be the result of an operational requirement. For example, retrenchment cannot be used to get rid of somebody who is guilty of misconduct or has become incapacitated. Further, the dismissal must also be a fair consequence of the existence of the operational requirement relied upon. Thus, if the employer is relying on economic reasons and the need to save cost, it is important to show that all other reasonable means of saving cost had already been exhausted before turning to retrenchment. Procedural fairness in the case of retrenchment rests on four legs. When the employer contemplates retrenchment, a notice must be given to the affected employees that the employer would like to consult with them about the possibility of a retrenchment. Then there is the actual consultation that must take place. During consultation, the employees would perhaps want more information about the reasons why the employer is contemplating retrenchment, and thus another leg of procedural fairness is the provision of information by the employer to the affected employees. Finally, when it becomes clear that retrenchment is the only option, notice of termination must be given. As indicated, the first leg of the procedural requirement is a notice to the affected employees inviting them to consult with the employer. At what point must the employer send this notice to consult to the affected employees? Section 189(1) provides that when an employer contemplates dismissing one or more employees for reasons based on the employer's operational requirements, the employer must issue a notice in terms of s 189(3) and consult. What does ‘contemplation’ mean? Imagine the situation where an employer becomes aware of certain operational needs; say there are financial challenges and starts exploring solutions. However, at this point the employer is not even thinking of retrenchment as the solution. If the solutions are effective, it would be difficult to argue that the employer contemplated retrenchment when those initial solutions were explored. However, if these solutions are not effective, retrenchment might appear on the horizon of the employer’s thinking. It is at that moment that the employer is starting to contemplate retrenchment and when notice must be given. In other words, ‘contemplation’ basically implies that the employer’s thought processes have reached a point where it regards retrenchment as a possible solution to its problems. 2 What information must be contained in the notice? According to s 189(3), the following must be indicated in the notice: reasons for the proposed dismissals alternatives that the employer considered before proposing the dismissals/reasons for rejecting each of these alternatives number of employees likely to be affected and their job categories proposed selection criteria time when/the period over which retrenchment likely to take effect severance pay proposed assistance that the employer proposes to offer to the employees likely to be dismissed possibility of future re-employment With whom must the employer consult? (On the slides, I have removed the references to workplace forums as they are almost non- existent in South Africa.) Section 189(1) provides as follows: When an employer contemplates dismissing one or more employees for reasons based on the employer's operational requirements, the employer must consult- (a) any person whom the employer is required to consult in terms of a collective agreement; (b) if there is no collective agreement that requires consultation- (i) a workplace forum, if the employees likely to be affected by the proposed dismissals are employed in a workplace in respect of which there is a workplace forum; and (ii) any registered trade union whose members are likely to be affected by the proposed dismissals; (c) if there is no workplace forum in the workplace in which the employees likely to be affected by the proposed dismissals are employed, any registered trade union whose members are likely to be affected by the proposed dismissals; or (d) if there is no such trade union, the employees likely to be affected by the proposed dismissals or their representatives nominated for that purpose. The hierarchy of the above ‘consulting parties’ is not uncontroversial, but for the moment it is only required that you are able to identify them. About what should the parties consult? The consultation agenda is decreed by s 189(2): Appropriate measures to avoid the dismissals, to minimise the number of dismissals or to change the timing of the dismissals (in short, alternatives short of dismissal) Selection criteria Despite the default position provided for in s 41 of the BCEA, severance pay. 3 A failure to consult about any of these topics, risks the procedural fairness of the retrenchment. (Further see ‘More about selection criteria:’ below.) What is the nature of consultation? Section 189(2) requires consultation to be a joint consensus-seeking process. Thus, while consensus is the ideal outcome of the consultation, it is not a requirement. Consultation is a dual process and requires engagement by all the consulting parties, the employer as well as the employee parties, with the purpose of reaching consensus. Obstructive or evasive behaviour by employees or their unions will not assist them. If they subsequently try to claim that a retrenchment was procedurally unfair, the courts will not assist them if they had behaved in such a manner. On the other hand, the employer must enter the consultation process with an open mind even if it strongly favours retrenchment. It must be willing to be persuaded that there are alternatives short of dismissal. If the employer enters the retrenchment consultation with a closed mind, even if it turns out subsequently that there were no alternatives short of dismissal, there is the risk of a court finding that the retrenchment was procedurally unfair. The joint-consensus-seeking spirit of the consultations are further endorsed by the following provisions: 189(5) The employer must allow the other consulting party an opportunity during consultation to make representations about any matter on which they are consulting. 189(6) The employer must consider and respond to the representations made by the other consulting party and, if the employer does not agree with them, the employer must state the reasons for disagreeing. What alternatives short of retrenchment can be considered? Overtime ban Change in shift system Reduced payment Ban on contract employment/temporary appointments Moratorium on filling vacancies Re-organisation of workplace practices Freeze on wage increase Voluntary early retirement Voluntary separation Work-sharing/short-time Lay-off (also called ‘furlough’ in foreign jurisdictions) (Ie. the employment is not terminated, but the employees are not expected to report for work and the employer has no obligation to pay remuneration.) More about selection criteria: If there is an agreement about the selection criteria to be used and that criteria are applied incorrectly, the wrong person can be retrenched. That would render the retrenchment substantively unfair. However, if the parties do not consult about selection criteria at all, it speaks to procedural unfairness. What can the employer do if it has consulted in a consensus-seeking spirit and no agreement is forthcoming? This is partly regulated by s 189(7) which provides that if there 4 is no agreement, the employer can proceed with the retrenchment and apply criteria that are fair and objective. Further guidance on selection criteria is provided by Items 7 and 8 of the 1999 Code. It confirms the legislative proposition that where no agreement is reached on selection criteria, the employer can proceed with retrenchment using fair and objective criteria. The 1999 Code indicates that criteria infringing a fundamental right can never be fair and further cautions against the use of apparently neutral criteria which could have a discriminatory effect. For instance, using contract employment as a selection criterium might have a disproportionate impact on the female workforce. The 1999 Code further provides that the following criteria are considered as fair: length of service, skills and qualifications and it endorses LIFO (last in, first out) as a fair and objective selection criterium. (Note: even though LIFO is sanctioned by the1999 Code as fair, selection criteria must still be consulted on before the employer can resort to LIFO.) Whenever LIFO is used as a selection criterium, bumping must be considered. This is so regardless of whether the parties agree to LIFO or whether it is used by the employer as a fair and objective criterium in the absence of such agreement. Bumping basically means the displacement of employees with shorter service. Imagine bumping… An employer has offices in Bellville and in Rondebosch. The longer serving employees are working in Rondebosch; the shorter serving employees are working in Bellville. Because of the operational requirements of the employer, the Rondebosch office is closed. Although those employees working in Bellville are not directly affected by the closure of the office in Rondebosch, they might be bumped and retrenched to accommodate the longer serving employees in Rondebosch. Horizontal bumping assumes employees of similar status. In the case of vertical bumping, the employees do not have the same status. Bumping should always take place horizontally before vertical displacement is resorted to. These principles have their origin in the judgment of the LAC in Porter Motor Group v Karachi (2002) 23 ILJ 348 (LAC). More about severance pay: The BCEA (s 41(2)) indicates that one week’s remuneration must be paid for each completed year of continuous service. (Note: if the employee has only worked for two months, severance pay is not due as there is not yet completed employment of one year. The consultation parties can attempt to address this via consultation: eg attempt to reach agreement on pro rata severance pay.) Furthermore, this section provides a floor and the consulting parties must still consult about severance pay and can always agree to more beneficial severance pay. Importantly, failure to consult about severance pay, despite the default position provided by the BCEA, can result in a procedurally unfair retrenchment. If the employee unreasonably refuses to accept an employer’s offer of alternative employment with that employer or another employer, it can result in the forfeiture of severance pay (s 41(4)). It has been held that it would probably not be unreasonable to refuse alternative employment which implies reduced remuneration. (See Astrapak Manufacturing Holdings (Pty) Ltd t/a East Rand Plastics v Chemical Energy Paper Printing Wood & Allied Workers Union (2014) 35 ILJ 140 (LAC).) 5 A dispute about the entitlement to severance pay, should be referred either to the CCMA or a bargaining council and is resolved through conciliation and arbitration (s 42(6)). The Labour Court can get involved with the determination of the amount of severance pay when it is also adjudicating the fairness of the retrenchment (s 42(10)). Introducing the differences between small-scale and large-scale retrenchments: In the case of large-scale retrenchments, both ss 189 and 189A apply. Section 189A(1) provides the formula which determines whether s 189A applies. (The employer employs more than 50 (ie 50 + 1) employees and contemplates retrenching a certain number of employees as per the formula.) The difference between small-scale and large-scale retrenchments primarily revolves around consultation and dispute resolution. In the case of large-scale retrenchments, it is possible (but not obligatory) for either consulting party to ask for the appointment of a CCMA facilitator to facilitate the consultation, Furthermore, there is a separation of disputes about substantive and procedural fairness; and strike action is permitted as a means of resolving disputes about substantive unfairness. (Note: Regardless of whether a facilitator is appointed, the consultation topics remain the same as for a small-scale retrenchment.) In the case of small-scale retrenchment (in other words, s 189A does not apply) there is no separation of disputes about substantive and procedural fairness and both must be referred as a single action for conciliation to the CCMA or bargaining council within 30 days of dismissal. If conciliation fails, the next step is to refer the matter to the Labour Court for adjudication. (See s 191(5) of the LRA.) In the case of a large-scale retrenchment, there is a separation of substance and procedure. If the employee party claims that the large-scale retrenchment is procedurally unfair, it must approach the Labour Court in terms of s 189A(13) for an interdict no later than 30 days after notice of termination. (Note: this is the only way of addressing procedural unfairness in the case of a large-scale retrenchment. If this procedure is not used, procedural fairness cannot be challenged when the substantive fairness is challenged as below.) If there is a claim that the large-scale retrenchment is substantively unfair, latest jurisprudence suggests that after receiving notice of termination, the dispute must be referred for conciliation (CCMA or BC). If conciliation fails, the employee parties can decide to refer the matter to the Labour Court for adjudication or they can strike. This choice is mutually exclusive. If the employee parties decide to refer the matter to the Labour Court for adjudication, they can no longer strike on the matter and vice versa. Duration of consultation - (ie after notice ito s 189(3) and before notice of termination can be given) A rushed consultation is unlikely to be fair, but on the other hand, a consultation cannot take forever, especially where the employer is having economic challenges. In the case of a small-scale retrenchment, there is no specified time period before notice of termination can be given, but sufficient time must be allowed for the employee consulting parties to meet with the employer and to report back to the employees and to receive and consider information from the employer. (See item 5 of the 1999 Code.) As the onus is on the employer to ensure procedurally fairness, it is the employer’s call to decide whether meaningful consultation, albeit unsuccessfully, had taken place and whether it is fair to give notice of termination. 6 In the case of a large-scale retrenchment, a minimum of 60 days must elapse from the time that the notice to consult is given in terms of s 189(3), before notice of termination can be given. (See s 189A(7) and (8).) 7