WHAT IF FINANCIALLY STRESSED EMPLOYERS CANNOT AFFORD TO RETRENCH?

[Ivan Israelstam]

WHAT IF FINANCIALLY STRESSED EMPLOYERS CANNOT AFFORD TO RETRENCH?
If an employer, urgently needing to cut payroll costs, has initiated the section 189 process, but neither has the money nor access to funding to pay out any retrenchment packages should it:
1. Retrench the employees without packages?
2. Consult thoroughly on options such as short time and temporary layoffs, prove to the employees that it has no money, present short time and/or temporary layoffs as the only viable solution and, despite flat refusals from the affected employees, implement the short time/layoff unilaterally?
That is, can employers use section 189 (or a section 189-like process) not for purposes of implementing retrenchments, but for purposes of legitimating, in good faith, other cost cutting measures, not as alternatives to retrenchment but as the central, primary mechanism for its cost cutback?

[Patrick Deale]

Q1: No – an employer can’t retrench employees without incurring a liability to pay at least the statutory minimum severance package of 1 year for each completed year of service. Section 41 (2) of the BCEA makes the payment compulsory. However, the employer can delay payment if it can’t afford to pay immediately. It must commit to an agreed payment plan or to pay when it can afford to. The retrenched employee in this case remains a creditor of the employer after the date of retrenchment.

Q2: Yes – an employer can legitimately use s189 as the primary mechanism for cutting costs. The Con Court confirmed this in its recent judgement in Numsa v Trident Steel in October 2020. In making this seminal judgement, the Con-Court took account of the context in which businesses must compete to survive and prosper in the modern economy. It said –

“In an ever-changing economic climate characterised by increasing global competition, operational reasons not only relate to the downsizing of the workforce, but also to restructuring the manner in which an existing workforce carries out its work.”

However, the court stressed that the primary reason must be for genuine operational reasons – it must not be a substitute for wage negotiations in the traditional collective bargaining process. It warns employers that

“Courts must guard against disguised retrenchments that take place where collective bargaining prevails. Courts can police opportunistic or disingenuous employers by determining the true reason for the dismissals.”

[Michael Bagraim]

WHAT IF FINANCIALLY STRESSED EMPLOYERS CANNOT AFFORD TO RETRENCH?
In essence if an employer can’t afford to retrench they need to enter into an agreement with the staff which must be reduced to writing. That agreement would allow the employer to pay off the retrenchment packages over a period of time. I have been doing this on a regular basis right throughout the pandemic. Most employees fully understand the nature of the situation.

There are other options which can be explored. Obviously temporary layoffs can be done especially if they belong to a bargaining council. Otherwise the temporary layoff has to be negotiated with the staff or the trade union. This is similar with regard to short time.
Unilateral layoff and short time can be explored during the pandemic and the lockdown as it seems to have become common practice throughout. There does not seem to be any law giving employers permission to do this unilaterally but as I said it seems to have been a common approach. We will be seeing many court cases and judgments on this over the next few years.
Michael Bagraim

[Author]

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